BT Announces £3bn Cost-Cutting Plan as Profits Drop 31%

BT Group, the British telecommunications giant, has announced a significant restructuring plan aimed at cutting costs by an additional £3 billion (approximately $3.8 billion) over the next five years. This decision comes in the wake of a nearly 31% drop in pre-tax profits, which fell to £1.2 billion for the year ending March 2024. The decline in profitability has been attributed to a combination of factors, including a substantial accounting charge of £488 million related to its struggling business division and the pressures of rising interest rates affecting its pension scheme.

The company, which has been a staple of British telecommunications since its privatization in the 1980s, is facing increasing competition from alternative network providers. In a challenging market, BT reported losing 491,000 broadband customers in the past year, a decline exacerbated by a lack of new housing developments and the ongoing cost-of-living crisis affecting consumers. Despite these setbacks, BT has made strides in expanding its full-fibre broadband network, reaching over 14 million homes and aiming to connect 25 million by the end of 2026.

Allison Kirkby, who took over as CEO earlier this year, described the current moment as an "inflection point" for the company. She emphasized the need for a renewed focus on the UK market and a commitment to modernizing operations. "As we move into the next phase of BT Group's transformation, we are sharpening our focus to be better for our customers and the country," she stated. This includes plans to simplify the company's structure and explore options for its international business, potentially divesting from less profitable markets.

The announcement of the cost-cutting measures has been met with a positive response from investors, with BT's shares experiencing a notable surge of nearly 17% following the news. This increase reflects a broader optimism about the company's future, particularly as it aims to double its cash flow to £3 billion by the end of the decade. Kirkby also raised the annual dividend by 3.9% to 8 pence per share, a move intended to reassure shareholders amid the tumultuous financial landscape.

Historically, BT has faced significant challenges, including a 45% decline in its share price over the past five years. The company has been criticized for its heavy investment in infrastructure, which some analysts argue has not yet yielded sufficient returns. However, Kirkby believes that the peak of capital expenditure has passed, allowing for improved cash flow and a more favorable environment for growth.

The company's ambitious plans include cutting its workforce by up to 55,000 jobs by 2030, representing a reduction of approximately 42% from its current headcount of 130,000. This workforce reduction is part of a broader strategy to leverage technology, including artificial intelligence, to streamline operations and reduce costs. Kirkby has indicated that while job cuts are necessary, the focus will remain on reskilling employees to adapt to the evolving demands of the telecommunications industry.

As BT navigates this complex landscape, it faces the dual challenge of modernizing its services while maintaining a competitive edge in a rapidly changing market. The company's commitment to connecting the UK with high-speed broadband is a critical component of its strategy, but it must also address the immediate concerns of profitability and customer retention. The coming years will be pivotal for BT as it seeks to redefine its role in the telecommunications sector and restore confidence among investors and consumers alike.