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BT’s fall from grace

Two years ago telecoms giant BT looked on top of the world. But since then the sprawling business has underperformed. Alice Gråhns reports.

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BT should capture customers not trophy assets

"If only landmark' years came around more often," says Alistair Osborne in The Times. Two years ago the shares of telecoms giant BT hit 450p as CEO Gavin Patterson hailed 12 months of "non-stop success". He trumpeted the best sales in seven years, the acquisition of mobile operator EE, and BT Sports' purchase of television football rights. He raised the dividend by 13% and promised plenty more growth to come, along with annual dividend increases ofat least 10%.

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So much for that. The shares slumped to a five-year low around 220p last week as BT produced "a data overload that must have been designed to confuse". There will be 13,000 back-office job losses, part of a cost-cutting plan to deliver £1.5bn of savings over three years. At the same time, BT plans to hire 6,000 engineers and spend £2bn to tackle the £11.3bn pension deficit. The firm is also leaving its central London headquarters. But the upshot is that the growth promised two years ago has "gone decidedly AWOL". BT reported a 1% fall in full-year revenues to £23.7bn, while profits before tax were 2% lower at £3.44bn. What's more, there will be no profit growth for two years and no sales increases for three years. In these circumstances, an unchanged dividend is "a cause for celebration".

Chasing football, not fibre

Some issues were beyond BT's control, says Nils Pratley in The Guardian. Smartphones and broadband markets "are less exciting than they used to be". But an Italian accounting scandal was "self-inflicted" and the group "wasted too much energy fighting regulators over the speed and scale of investment in fast-fibre broadband". It also put too much emphasis on chasing football rights. The complaint that the national telephony champion "should put fibre over football is 100% legitimate". So what next?

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The list of measures at the results presentation suggests Patterson is "now doing the right things", says Liam Proud on Breakingviews. Sacking all those paper pushers is especially welcome. Last year BT produced 26% less revenue per employee than the average of its four big continental counterparts in Germany, France, Italy and Spain. Capital expenditure will increase to fund full-fibre broadband and about time too. Patterson says the staff cuts and stagnant payouts were necessary to give BT some breathing space given a slow-growth consumer market and price caps enforced by the regulator. "It is just about possible to think the worst has passed," says Pratley. But the 7% yield suggests the market is waiting to see whether Patterson's plans come to fruition this time.

Vodafone's boss bows out on a high

Vodafone's outgoing CEO Vittorio Colao "is leaving a tough job for his successor", Nick Read, saysLiam Proud on Breakingviews. "A disciplined approach to investments and acquisitions" has helped the mobile giant eclipse its peers' returns, so Colao, whose departure was announced this week, "leaves on a high".

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Since he took the helm in 2008, Vodafone has produced an annualised return of 11%, compared with the STOXX 600 Europe Telecom index's 7%. Given how much competition and regulation have beset the sector in the past decade, "that's impressive". Now Vodafone is at a "turning point". The challenge for Read will be to "make a success of the giant Liberty Global deal at a company... more used to pruning than growing its portfolio". The €18.4bn tie-up, agreed last week, will see Vodafone acquire German and eastern European assets from John Malone's Liberty Global. The aim is to boost customers' loyalty by selling mobile, cable and broadband as a package.

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More broadly, Vodafone is betting on consolidating mature European territories rather than chasing emerging markets growth, says Alex Webb on Bloomberg. In a call with investors after the Liberty deal was announced, Colao largely let his successor hog the spotlight. He was hinting that "this was very much Read's deal". The handover makes sense. After ten years "where Colao's main successes were in reaping rewards from financial investments, giving someone else the operational responsibility for the Liberty deal's success" appears a sensible idea.

City talk

It's "a milestone moment" for Royal Bank of Scotland, according to CEO Ross McEwan. That's an "oddly cheerful way to describe" a $4.9bn settlement with the US Department of Justice, says Nils Pratley in The Guardian. But he has a point. We were expecting a deal "to cover misdeeds in the world of toxic US mortgage debt on Fred Goodwin's watch" 18 months ago, and the sum could have reached $7bn. Now we can hopefully expect the return of the dividend next year.

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"It would be a dark moment for modern Britain but peak sausage roll may finally be upon us," says Ben Marlow in The Daily Telegraph. Bakery chain Greggs has "gone from strength to strength" in recent years; its share price hasmore than doubled since 2014. But now Greggs "has served up a cold dish" of falling profits for 2018. The "Beast from the East" left its delivery vans struggling to reach their destinations, and staff couldn't make it into work either. But the market clearly isn't convinced that this is "just a weather-related blip": the shares plunged by 19% on the news.

"Not every chief executive gets re-elected with 99.12% of the vote," says Alistair Osborne in The Times. "So it's lucky Centrica's Iain Conn has some tips on how to do it." The main one? Be sure to produce a massive profits warning. That came last November, triggering a 15% slump in the company's share price. Poor trading in North America and accounting problems were other highlights of the year. Still, at least Conn took a big pay cut after the poor year. And this week we learnt that first-quarter results "showed glimmers of progress". Cold weather boosted demand for heating and there were fewer customer-account losses in the US. But as bills increase "there will be more".

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