Weak Sales but Good Margins from BT

Aggressive cost cutting helped BT Group achieve good first-quarter margins amid declining revenues

Allan C. Nichols, CFA 29 July, 2011 | 12:01PM
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BT Group (BT.A) reported mixed fiscal 2012 first-quarter results with weak revenues, but good margins. Revenues decreased 5% year over year versus our expectation of a 1.3% decline for the full year. The Openreach division was the only segment to show growth, with revenues growing 5%, which was the best result since the division was separated from the retail division. For the third quarter in a row, the company also saw an increase in new consumer fixed lines. The U.K. continues to be the only developed country where we're seeing this phenomenon. It also saw increases in Ethernet, broadband, and local loop unbundling.

While revenues have declined, BT has been aggressive at reducing costs, resulting in 30.1% EBITDA margins, ahead of our full year projection of 29.3%. The firm has steadily increased its margins since bottoming out in 2009. Margin expansion should continue, as we think there is still room for improvement over time.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BT Group PLC144.70 GBX0.42Rating

About Author

Allan C. Nichols, CFA  is a senior stock analyst and international investing specialist with Morningstar.

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