Philip Jansen, the former boss of digital payments group Worldpay who started his new role as chief executive of BT this month, will take the helm at a telecoms group that has seen its share price halve over the past three years.
Outgoing CEO Gavin Patterson kicked off a major overhaul of the business in May 2018 designed to cut £1.5bn in costs, boost profits and release cash to invest in 5G technology.
But the FTSE 100 listed company still has several challenges to overcome, including a debt load of almost £12bn and a large pension deficit and stiff competition in its key markets.
Jansen’s to do list
Boost share price: Shares in BT
were trading at 340p when Patterson was appointed in September 2013 and they reached a high of almost 500p in early 2016. Now the stock is trading at 230.90p a share. Management says it expects full-year cash profits to be at the higher end of its £7.3bn-£7.4bn forecast range.
Cut debt: BT has more than £11.9bn of debt on its balance sheet, in part because of its commitment to plug a deficit in its pension fund – one of the largest in the U.K. The telecoms group has agreed to pay £2.1bn between May 2018 and 31 March 2020, and annual payments of £900m for a decade from 2020.
Reduce TV sport spending: BT has come under fire from shareholders for spending more than £3.5bn since 2012 on TV sports rights as it looks to compete with Sky while quarterly subscription numbers continue to fall. However, a new content sharing-deal between BT and Sky kicks off in early 2019 that will allow the broadcasters to sell their channels on each other’s platforms. Analysts hope this will reduce the scale of bidding for the upcoming Premier League TV rights auction in February.
Cut 13,000 jobs: BT is cutting 12% of the group’s global workforce over three years and has already eliminated 2,000 of these. But the company plans to create 6,000 new roles in network deployment and customer service.
Sell HQ: BT hopes to fetch more than £200m from the sale of its iconic London headquarters and has tasked real estate agency Cushman & Wakefield with finding a buyer.
Sell assets: Patterson has also sold several noncore assets, including the U.K. cable business and an information and a small, German-based communication consultancy. Credit Suisse has been mandated to sell BT’s troubled Italian division which took a £530m write-down in January 2017 in the wake of an accounting scandal. Lazard has been tasked with finding a buyer for BT’s fleet management division.
5G: The fifth generation of wireless network technology promises to give consumers much faster connectivity speeds than 4G, the current high-speed standard. In December, BT removed Huawei equipment from the “core” of its 3G and 4G mobile networks. Global security concerns about the Chinese telecom group escalated last year after the company’s chief financial officer was arrested on charges of busting U.S. sanctions on Iran. Huawei says it was in compliance with American laws. BT will continue to use Huawei for the more benign parts of its network such as phone mast antennas.
M&A — Deutsche Telekom bid? Traders are speculating that Deutsche Telekom
could launch a full takeover bid for BT when a restriction on the German group’s ability to buy more shares is lifted. DT has been the largest shareholder in BT with a 12% stake since 2015 when it sold EE, its U.K. joint venture with Orange to BT for £12.5bn. Orange has a 4% stake in BT. However, under the terms of that deal, DT wasn’t allowed to increase its stake beyond 15% until January 29, 2019. DT had originally bought BT shares when they were trading at around 452p. Today, the stock is valued at 238.25 a share. “While Deutsche Telekom will have been frustrated with its investment in BT as the shares have halved in value since the EE deal completed, this weakness presents an opportunity to buy the business at a cheaper price,” Russ Mould, investment director at AJ Bell said. “The big question is whether it really wants to own the company given a troubled history in recent times,” he added.
Sell Openreach? U.S. activist investor David Einhorn has bought a stake in BT and is pushing the company to sell or spin off Openreach, which controls the U.K. broadband network. However, BT has agreed a deal with U.K. media regulator Ofcom which will allow it to invest in connecting 10 million homes with full fiber ultrafast broadband by 2025. Ofcom also said that BT was the best custodian of the network.
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