It was only a few years ago that BT’s policy on dividends was to shoot for an increase of 10%, minimum, annually. That was downgraded to a “progressive” approach, meaning up a bit, in May 2017. Now shareholders’ rations are being suspended and, when a divi returns in the 2021-22 financial year, it’ll be at half the old level.
Chairman Jan du Plessis and the new (ish) chief executive, Philip Jansen, offered obligatory apologetic words to investors about a “difficult” decision, but this was a case of bowing to the inevitable. A cut to finance investment in the fast-fibre network should have happened before now.
The City, which had expected a light dividend trim rather than a full lockdown crew cut, was appalled. But boldness seems the correct choice. The pandemic has underlined the need for superfast broadband across the nation and BT was horribly exposed to yet another round of political argy-bargy. Best to get ahead of events.
The good news for non-shareholders, therefore, is that BT is now equipped to spend big – or bigger – on fibre. Jansen has upped his target from 15m to 20m premises by the “mid- to late-2020s”, which represents a commitment of £12bn.
But shareholders themselves, once they’ve overcome the shock of another downwards lurch in the share price, ought to view the reset positively. Assuming the last pieces of the regulatory fix fall into place, Jansen sees BT making a pre-tax return of 10%-12% on its fibre investment. The return is not without risk, but the terms are decent for infrastructure that could be used for half a century.
The shame is that BT’s boardroom was so slow to turn. Blame the old guard – led by former chairman Sir Mike Rake and former chief Gavin Patterson – that expended corporate energy fighting Ofcom and politicians over the pace of fibre investment. What was the point? The frustration tactics didn’t work, and the dividend proved unaffordable anyway.
An earlier divi sacrifice would not have spared BT shareholders’ pain, obviously, but everybody would have been better off by now. BT’s share price would surely be higher than today’s 10-year low. And the UK’s connectivity would rank higher in international league tables, which is rather more important. A lot of time was wasted on squabbles for no gain.
Virgin-02 strategic merger will not move digital mountains
The planned creation of Virgin-02 probably had zero influence on BT’s investment thinking as the merger has been unveiled only this week. But a bigger rival should usefully intensify competition in future, right?
Well, up to a point. The merging duo’s corporate parents – Liberty Global for Virgin and Telefonica for 02 – are making a logical strategic move, but their primary motive looks to be financial. The new corporate beast will be saddled with debt on day one, allowing Telefonica to extract £5.7bn in cash and Liberty £1.4bn from the transaction.
The joint venture will also be “investing £10bn in the UK over the next five years”, announced the owners, which is a handy sum but is also only the aggregate of what Virgin Media and O2 would have been expected to spend anyway.
In combination, there’s an opportunity to spend more smartly by marrying 5G and broadband technology and offering consumers an integrated package. Liberty has had success on the continent that way. Yes, it’s possible this is the moment when British punters decide “quad play” is more than marketing spiel.
Let’s be clear, though, a clever financial deal, with Liberty inserting large accumulated UK tax allowances, does not necessarily “change the digital landscape”, which was the boast. It may do so in time, but no digital mountains have been moved yet.
Next beauty halls mark landlord-tenant power shift
Here’s a rare sight: expansion in retail-land. Next is opening five standalone beauty halls in space that Debenhams vacated this week. It’s an interesting experiment. And, since Next said its leases with the landlord Hammerson are “flexible”, there’s an escape route if things don’t work out as hoped.
Therein lies the familiar part. The balance of power between landlord and tenant has shifted. Hammerson gets a new attraction, which will help to generate footfall in important locations like the Bull Ring in Birmingham, but it can’t get the same rental security as in the old days. Needs must.