Divi disappointment at BT

Slightly better than anticipated earnings could not shield BT Group from the bears on Thursday as hopes were dashed of a dividend bonanza in the wake of the telecoms giant sorting out its pension overhang.

Underlying profit before tax in the year to March 31st rose 16.2% to £2.42bn from £2.08bn the year before, versus expectations of £2,412m. Earnings before interest, tax, depreciation and amortisation (EBITDA) edged up 3% to £6.06bn from £5.89bn.

On a quarterly basis, fiscal fourth quarter adjusted profit before tax was up 13% to £690m from £610m in the corresponding period of last year, while underlying EBITDA rose 4% to £1,609m from £1,551m in the final quarter of the previous financial year.

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While profits topped expectations for the provider of fixed line telephony, data and TV services, full year revenue slipped 4.0% to £19.3bn against a market expectation of £19.35bn - not a huge miss, but a miss all the same, and down from the previous year's £20.08bn.

One promise that has raised eyebrows is a commitment to increase dividends by between 10% and 15% a year for the next three years. Certainly this year's payout is on track, with the full year figure coming in at 8.3p per share or a gain of 12% on the prior year (although this was less than the 8.73p the market had been expecting).

Broker Jefferies, which rates the shares a "buy", preferred to take the glass-half-full view on the dividend per share (DPS) issue.

"3-year DPS guidance may initially disappoint but contrasts favourably against peers," the broker said. The broker notes that the dividend guidance was formulated after "extensive discussions with major shareholders, and is intended to be conservative and prudent."

Broker Nomura pointed out that some optimists had been expecting BT to ramp up ita divi to 11p this time round. "There is a risk that investors feel short-changed from a low pay-out post the pension settlement and also that this undermines confidence in the pension settlement itself," Nomura said, before echoing the observations made by Jefferies about BT's consultation process.

The Global Services division, which provides data services to corporate clients, will see lower cash flow in 2013 says BT, before returning to growth in 2014. This is a sensitive area for the firm because it was Global Services which caused BT to post a pre-tax loss back in 2009.

Looking at the coming two years, BT said it expects underlying revenues to show an improving trend in 2013 and 2014, while in the same years it also expects growth in EBITDA.

Adjusted earnings per share climbed 13% to 23.7p, well ahead of market expectations of 23.17p.

"In what remains a challenging environment we have delivered another year of growth in profits and free cash flow. Our financial strength has allowed us to invest in the business, make a £2bn payment into the pension fund, reward employees and deliver double digit growth in shareholder returns," said Ian Livingston, Chief Executive of BT.

The market reception fell short of ecstatic, the shares were down 1.5% by 13:34.

BS