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BT hails rise in earnings as key Openreach talks continue

Published 28/07/2016

BT reported a rise in earnings and profits
BT reported a rise in earnings and profits

BT has cheered better than expected earnings as crunch talks with Ofcom continue over the independence of its Openreach broadband network.

The telecoms giant said it would engage with Ofcom over the coming months in the wake of Tuesday's proposals, which suggested Openreach could become a "distinct company" within the BT group rather than face a full sell-off.

The firm said revenues lifted 35% to £5.8 billion in the first quarter, compared to the same period in 2015, while adjusted pre-tax profits stepped up 16% to £802 million over the period.

Earnings before interest, tax, depreciation and amortization (EBITDA) also rose 25% to £1.8 billion in the three months to June 30.

However, BT said the results were impacted by its £12.5 billion takeover of EE in January.

Shares in the firm were up more than 3% on the London market.

Chief executive Gavin Patterson said the company had made a "good start to the year" and was on course to meet its outlook for the full year.

"Our integration of EE is progressing well, alongside our business reorganisation that took effect on April 1.

"EE performed strongly, both financially and commercially, and our customers are seeing the initial benefits of our acquisition with BT Sport now available to EE pay monthly customers."

He added: "Having listened to Ofcom and industry, we have set out our proposals for greater independence and transparency for Openreach.

"Our proposals can form the basis for a fair, proportionate and sustainable regulatory settlement and we believe they can also enable Ofcom to bring its digital communications review to a speedier conclusion.

"We will continue to engage with Ofcom over the coming months."

The Ofcom proposals include making Openreach a distinct company with its own board, including a majority of non-executive directors not affiliated to BT Group.

It also proposes greater consultation with customers on large-scale investments, its own staff working for Openreach, ownership of assets that it already controls, its own strategy and control over budget allocation, and independent branding.

George Salmon, equity analyst at Hargreaves Lansdown, said: " BT has acted decisively to target the quad-play market that large telecoms are currently chasing, comprising mobile, TV, broadband and landline services all in one package.

"By bundling these services together, it's hoped that customer churn will reduce, which in turn supports revenue and profit visibility."

He added: " If the theory behind the quad-play strategy proves correct, BT are in an excellent position.

"The integration of EE should also offer significant synergies, and could bring the added bonus of supporting cash flows. This could be key given BT is aiming to grow the dividend by at least 10% this year and next.

"Blots on the copybook could come from the potential difficulty associated with integrating an operation the size of EE, while the performance of Openreach will also be watched closely, following Ofcom's latest reforms."

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