BT shares started Thursday trade on the back foot following a disappointing trading update for the nine months to end 31st December.
The telecoms company saw their revenue fall as a result of inflationary pressures, lower equipment sales and the removal of BT Sport revenue.
Revenue declined 1% while profit before tax for the period sank 15%. Profit before tax was heavily impacted by deprecation costs which offset a jump in EBITDA.
The lower profit was recorded despite efforts to lower costs across the business. The group plan to save £3bn in annualised costs by the end of 2025.
“Cost cuts remain the aim of the game as BT battles with higher costs from a host of angles. To be fair, management look to be doing a decent job and synergies from the newly created BT Business should help make the £3bn cost saving target a reality – but there’s no avoiding the fact cash flow is under pressure,” said Matt Britzman, equity analyst at Hargreaves Lansdown.
Analysts also pointed out the challenging nature of BT’s sector. There is increasing competition and their top line growth is kept in check by customer’s ability to switch providers and pressure from regulators. This creates a model that is heavily reliant on reducing costs to boost profits.
“Telecoms is a mighty challenging sector. There’s little to differentiate providers and regulators and consumers are always demanding more for less. So while BT is pushing through price increases, it must be careful not to push too hard,” said Charlie Huggins, Head of Equities at Wealth Club.
“Then there are the huge cash demands – BT will spend around £5 billion this year alone to maintain and upgrade its infrastructure, and it will have to keep the spending taps open to remain competitive. If inflation remains elevated, these costs are only likely to increase.”
BT shares were trading down 0.7% at 122p at the time of writing, after recovering from lower levels earlier in the session.