BT has scrapped its dividend for the next two years as it copes with the fallout from the coronavirus lockdown and will instead increase its full fibre broadband rollout.
Chief executive Philip Jansen, who recently recovered from Covid-19, said a new target of full fibre to 20 million homes by the mid to late 2020s is now in place.
But investors reacted angrily to the dividend cut, with shares plunging to all-time lows. In early trading on Thursday shares were down 8.4p, or 7.2%, to 105.8p.
To hit the new target, BT will spend £1.3 billion over five years, with benefits of £1 billion by 2023 and £2 billion by 2025.
Dividends for the business, which also owns the EE mobile network, are expected to return by 2022 at 7.7p a share, the company added.
The full impact will only become clearer as the economic consequences unfold over the next 12 monthsPhilip Jansen, BT
Mr Jansen said: “BT had a positive year delivering results in line with expectations and completing our £1.6 billion phase one transformation programme, one year ahead of schedule.
“Of course, Covid-19 is affecting our business, but the full impact will only become clearer as the economic consequences unfold over the next 12 months. Due to Covid-19, BT is not providing guidance for 2020/21 at this time.
“BT has the best network infrastructure in the UK. We have the leading 4G network and are rapidly expanding our leadership position in 5G, that today covers over 80 towns and cities.”
He said the new five-year plan would “re-engineer old and out-of-date processes, rationalise products, reduce re-work and switch off many legacy services.”
Chairman Han du Plessis said: “Recognising the importance of dividends to our shareholders, the board’s decision in relation to the dividend has been exceptionally difficult.
“BT plays a key role in sustaining critical national infrastructure – as magnified by the Covid-19 crisis – and many stakeholders trust and rely on the connectivity we provide.”
The decision came as revenues fell 2% to £22.9 billion in the year to March 31, due to declines in legacy products and impacts from regulation.
Pre-tax profits were down from £2.67 billion to £2.35 billion, including a £95 million charge due to the pandemic increasing debt.
Russ Mould, AJ Bell investment director, explained that the dividend cut was required because BT’s heavy debts, big pension deficit, tight regulation and stiff competition made costs tight.
He said: “The decision to cancel the final dividend for the year to March 2020, pay nothing at all in the period to March 2021, and then halve the annual payment to 7.7p a share in fiscal 2022 saves BT some £3.3 billion and leaves income-hungry shareholders merely with the hope that there will be some long-term gain after this considerable short-term pain.”