Half-year underlying revenue rose 1% to £8.8bn, with second-quarter revenue ahead of expectations. Underlying cash profit (EBITDA) also rose 1% to £4.1bn, helped by cost savings.
Openreach added a record 1.1mn full-fibre connections, taking the total to 9.9mn. Total broadband lines fell by 175,000 in the second quarter.
Underlying free cash flow fell 59% to £236mn, and net debt rose to £21.0bn. An interim dividend of 2.50p was declared, up 2%.
Full-year guidance was unchanged, including around £2.0bn of underlying free cash flow. A new pension agreement means no further cash top-up payments are expected.
The shares rose 5.6% in early trading.
Our view
BT's half-year results were ahead of expectations, with revenue and cash profits both beating forecasts. Operationally there were a few puts and takes, but the real news came from the pension scheme.
The wider strategy involves significantly modernising and simplifying operations and product lines, moving customers onto the new 5G and fibre networks, which are cheaper to run than legacy infrastructure. Cost cuts remain a long-term focus, helping profits grow even as revenue moves sideways.
The asset we're most excited about is Openreach, which builds and maintains the fibre network. Faster growth in revenue per customer, as more people moved onto fibre, drove the profit beat, and broadband line losses were better than expected. Full fibre reaches 24.1mn premises, with around 41% connected. The 25mn target has slipped to March, but that shouldn't change the bigger picture.
Elsewhere, it's more mixed. Consumer broadband customer numbers dipped slightly, and Business remains a drag, with competition and structural change making it a tougher area to fix. Free cash flow was also lighter than expected, though the first half is typically the weaker one.
The triennial pension review is the big piece from these results. Hefty cash top-ups have been a long-standing drain, and the scheduled payments are now being replaced by bonds issued to the scheme, with no further deficit contributions expected. That adds to debt, but in return BT gets much more flexibility. It can now pay out up to £1.5bn this year, rising to £2bn by 2030, without triggering extra cash injections to the pension scheme.
That comes just as BT enters the final stages of a major investment cycle. As spending on the fibre build falls away, the benefits to cash flow are now just around the corner, with free cash flow targeted to rise from around £2bn this year to £3bn by the end of the decade. Put the two together, and the optionality on future returns looks much better than we're used to seeing at BT, though nothing is guaranteed.
All in, BT remains the telecom name under our coverage with the cleanest growth story. However, the market has caught on. The valuation has moved up meaningfully from 2023 and 2024 levels and now sits well above its long-term average. We think the shift in sentiment is justified, but with the improving fundamentals now well understood, it's not clear to us where the next catalyst will come from.
Environmental, social and governance (ESG) risk
The telecom industry is low/medium in terms of ESG risk. Data privacy and security is the most significant risk driver, not only because customers are increasingly concerned about privacy, but also because cybersecurity breaches can be costly. Product quality is another key risk, particularly given the networks they manage are considered critical infrastructure. Carbon emissions, human capital and business ethics are also risks worth monitoring.
According to Sustainalytics, BT’s overall management of material ESG issues is strong.
BT follows strict security measures to protect personal data and has 3,600 cybersecurity employees. Greenhouse gas reduction policies are strong, including net zero alignment, emissions reduction coverage, audits and verification. BT scores well on board structure, shareholder rights, remuneration, audit and financial systems, and stakeholder governance.
BT key facts
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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