British Telecommunication Company BT Dividend Policy Paper Example

Introduction

This report aims at getting the financial analysis of the British Telecommunication Company BT. The report will analyze BT's financial operations to give evidence-based recommendations on the next financial year's dividend payout. In this case, the report will start by analyzing the historical performance of BT, which will look at the financial and non-financial success factors. The report will then examine the current dividend policy of BT. The next step will be the discussion of the next financial year's forecasted revenue. The final step will be the recommendation of the company's next financial year's dividend policy based on the results of the examination of the above factors. This report is crucial as it will help in outlining the most applicable dividend policy that will consider all stakeholders' interest.

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Financial Performance

The historical performance of BT will be evaluated over the most recent three years. In this case, the annual report of the company and the Wall Street Journal will be used to determine the company's performance over the last three years. In terms of the sales revenue, the company has had a mixed performance. In 2016, BT recorded a 5.76% increase in sales revenue to (18.879 GBP billion). This further increased by 27.56% in 2017 to reach (24.082 GBP billion). However, in the financial year 2018, the company recorded a decline in the revenue by 1.4% to reach 23.746 GBP billion (WSJ, 2019). The main reason why the company registered the decrease in the revenue was due to the challenges it faced in the global services, characterized by the current challenging market conditions and the lower IP exchange volumes and equipment sales (BT, 2018).

The company has been able to manage its cost of goods sold over the past three years, which made the total cost of goods sold in 2018 to reduce by 0.66% (WSJ, 2019). The gross income reduced by 2.39% as opposed to 2017's growth of 34.2% and 2016's growth of 7.74%. In terms of the gross margin, the company had a gross profit margin of 40% in 2016, 43% in 2017 and 42% in 2018. In this regard, it recorded a decrease of 1% in its gross margin. This would translate to a 1% decline in the efficiency of managing operating costs. Irrespective of the reduction in the gross profits, the company recorded positive performance in the management of its expenses, hence leading to the pretax income growth of 10.75% compared to the 2017's pretax income decline of -18.55%.

Similarly, the efficiency in the management of the company's costs enabled it to record an increase in net income by 6.35% in 2018, compared to the decline in2017 of -22.45%. However, in 2016, BT was able to record a 15.18% increase in net income. Over the past three years, BT has been able to increase its earnings per share, with the 2018's EPS having an increment of 6.77%, hence indicating strong performance. In terms of debt, the company's debt in 2016 was 9.84 HBP billion. This figure dropped to 8.93 GBP billion in 2017. However, in 2018, the net debt of the company increased by PS695m to PS9.627 billion. The main reason for the increase in debt was the increased investment of the company in R&D, making it utilize debt capital.

In terms of the non-financial analysis, BT was analyzed in terms of its customers' satisfaction. This is a key performance index which measures how much BT keeps its promises made to its customers. According to the performance report, BT's customers' satisfaction level has been in an upwards trend since 2010 as shown below

The customer satisfaction level of BT improved by 4.3% in 2018. In 2017, the customer satisfaction level had grown by 6.4%. However, in 2016, the satisfaction level had declined by 3%. Irrespective of the decline, the satisfaction level chart depicts an upward trend over the past nine financial years. The company has hired more than 2,400 engineers to help in improving the type of services offered to customers, hence recording a 3.7% decline in network faults in the 2018 financial year. The average downloading speed of the broadband speed recorded 20% improvement in 2018, hence leading to further improvement in the customer satisfaction level.

In the same way, BT launched products which best fit their customers' needs, like the launch of the 4G antenna which further improved customer satisfaction. The newly hired engineers added to the skilled workforce of the company. The diversity of the employees and the better working condition enabled the company to record a 1% decline in the number of employees taking sick leaves in 2018.

Forecasted Revenue

The company has been on positive performance. However, the increased investment in R&D and the challenging environments in Global Services (BT, 2019). The effects of Brexit also may weigh down on the company's net revenue in recent years. According to the article published by Bloomberg in August 2018, BT had pledged to cut more than 13,000 jobs in an attempt to reduce its costs (Seal, 2018). In this line, the company still failed to impress its investors with the job cuts. BT's stock in the market had fallen by 10% in August 2018, which was the highest percentage that the stock had dropped over the last fifteen years. The Bloomberg analysists indicate that BT is facing a bleak sales outlook over the next five years, as shown by the lack of free cash flow growth. Besides, the regulators in the UK have made the company comply with the mandatory price cuts in the country and has spent a lot in response to the political pressure for the company to invest in faster broadband (Seal, 2018). The current rising inflation trend in the UK further weighs down on BT's next financial performance. In this case, we forecast that the company will record a 2% decline in its revenue, to get a net revenue of 23.3 GBP billion in the next financial year (2019), which is also per the MarketScreener (2019) forecasts.

References

BT Group PLC (2019). Key performance indicators. Retrieved from https://www.btplc.com/Sharesandperformance/Annualreportandreview/2018summary/documents/annual_report_2018.pdf

BT Group. (2019). Annual Report & Form 20-F 2018. Retrieved from https://www.btplc.com/Sharesandperformance/Annualreportandreview/2018summary/documents/key_performance_indicators.pdf

MarketScreener (2019). BT Group (BT.A). Retrieved from https://www.marketscreener.com/BT-GROUP-4003616/financials/

Seal, T. (2018). BT Plunges on Weak Outlook as Job Cuts Fail to Impress Investors. Bloomberg. Retrieved from https://www.bloombergquint.com/business/bt-group-reports-pension-gap-13-000-job-cuts-in-strategy-update#gs.vLTX5Ni8

WSJ (2019). BT Group PLC: Financials. Retrieved from https://quotes.wsj.com/UK/BTA/financials