“Mr. Patterson will point to the acquisition of EE, the purchase of football rights and the creation of BT Sport, a settlement with its pension holders and extensive investment in fibre broadband networks as major strategic steps for the company.
“But shareholders will counter by pointing to profit warnings, an Italian accounting scandal, money wasted on share buybacks and the abandonment of a plan to consistently increase dividends. BT has, ultimately, massively undershot the financial goals laid down by Mr Patterson in March 2016.
| Target | Target |
| Actual | Forecast |
| 2017 | 2018 |
| 2018 | 2019 |
Change in underlying revenue | Growth | Growth |
| (1.0%) | (2.0%) |
EBITDA | £7.9 bn | Growth |
| £7.5 bn | £7.3-£7.4bn |
Normalised free cash flow | £3.1-£3.2 bn | £3.6 bn-plus |
| £3 bn | £2.3-£2.5bn |
Dividend per share | 10% growth-plus | 10% growth-plus |
| Flat at 15.4p |
|
Source: Company accounts. Targets as laid down in March 2016 alongside FY 2015 results
“It is also possible to question whether BT can now even afford to sustain its dividend, let alone increase it. Cash flow did not actually cover the shareholder payout in the year to March 2018, once tax, interest, capital investment and pension contributions were taken into account.
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
Sales | 18,253 | 18,287 | 17,851 | 18,909 | 24,082 | 23,746 |
Operating profit | 2,948 | 3,145 | 3,402 | 3,613 | 3,167 | 3,381 |
Depreciation & amortisation | 2,843 | 2,695 | 2,538 | 2,631 | 3,572 | 3,514 |
Net working capital | (2) | (402) | (187) | 41 | (17) | (515) |
Capital expenditure | (2,438) | (2,346) | (2,317) | (2,622) | (3,454) | (3,522) |
Operating Free Cash Flow | 3,351 | 3,092 | 3,436 | 3,663 | 3,268 | 2,858 |
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Tax | (64) | (347) | (309) | (256) | (551) | (473) |
Interest | (790) | (614) | (590) | (558) | (629) | (555) |
Pension contribution | (325) | (325) | (876) | (880) | (274) | (872) |
Dividend | (683) | (778) | (924) | (1,075) | (1,435) | (1,523) |
Remaining free cash flow | 1,489 | 1,028 | 737 | 894 | 379 | (565) |
Source: Company Accounts. Company year to March.
“In the end the Patterson plan failed to deliver where it matters most to investors – the share price. BT shares trade at a six-year low and even stand below where they stood when Sir Peter Bonfield took over as CEO in early 1996.
“Over the 1,732 days of Mr Patterson’s tenure to date, BT’s shares are down by 41% - dividends limit the total returns loss to around 24%.
“That is easily the worst showing among the four bosses who have led the telecoms firm since the turn of the millennium, although the shares did nearly as badly relative to the FTSE 100 under Sir Peter and – in Mr Patterson’s defence – only one of the last four CEOs has managed to get the shares to go up at all during their tenure.
| Start | End | Days | Change in BT share price | Change in FTSE 100 |
Gavin Patterson | 10-Sep-13 | 08-Jun-18* | 1,732 | (40.5%) | 17.0% |
Ian Livingston | 01-Jun-08 | 09-Sep-13 | 1,926 | 54.5% | 7.9% |
Ben Verwaayen | 01-Feb-02 | 30-May-08 | 2,310 | (1.1%) | 12.8% |
Peter Bonfield | 01-Jan-96 | 31-Jan-02 | 2,222 | (9.6%) | 45.4% |
Source: BT Accounts, Thomson Reuters Datastream. *Mr Patterson’s departure date has yet to be confirmed
“This may give investors – and Mr Patterson’s successor – pause for thought, while suggesting that perhaps his greatest failing was over-optimism.
“The company is hemmed in on all sides, by a demanding regulator on one hand and fierce competition from Sky, Virgin Media, Talk Talk, Vodafone, O2 and Three on the other (to name just a few) – and that is before Amazon’s initial foray into acquiring Premier League football rights is taken into account.
“The new chief executive will therefore have a lot on his or her plate and they will also be in the unusual position of being asked to implement a strategy which the BT board – including presumably Mr Patterson – has already signed off, with the help of consultants McKinsey.
“At least one thing that the new CEO will have on their side is the shares’ rotten performance under Mr Patterson.
“If earnings and dividends forecasts prove reliable, BT trades on barely 8 times earnings for 2018 with a yield of 7.5%.
“The fact that the price/earnings ratio and dividend yield are so close to each other – one very low, one very high – suggests that analysts and investors don’t believe the forecasts but at least that means the base for expectations is pretty low, especially as just 10 of 23 analysts who cover the firm rates the shares as a ‘buy’. At least this suggests that it might not take too much to provide some kind of positive surprise once then new regime gets going.”