The once derided company is now a cash-gusher, bosses are happy with shares and shareholders with dividend rise
Here’s a novelty – an incentive scheme that has worked for almost everybody. What’s more, it comes from BT, a company that for a decade or more stood for some of the worst failings of corporate Britain: poor service, fat boardroom rewards, fatter payoffs for failure, an obsession with vainglorious overseas adventures and an unaddressed crisis in the pension fund.
First, the winnings that flow from the threefold improvement in cash generation since 2009 and a similar recovery in share price from 70p to 213p. Chief executive Ian Livingston will collect shares worth £4.5m next week when his 2009 incentive scheme vests, and, all being well, can look forward to a slightly smaller payout in a year’s time from the 2010 scheme. About 1,000 of Livingston’s management underlings will enjoy their own jackpots via the same schemes. And 20,000 staff in the UK will bank an average profit of £8,500 via save-as-you-earn schemes; another 25,000 are in the money to the same degree on five-year plans that finish in 2014.
BT will spend £300m of its shareholders’ cash on shares to fund that little lot. But investors are unlikely to complain given the shambolic state of the company when Livingston was promoted in 2008. His rescue formula – stop the nosebleed in the global services division (which runs big IT contracts), slash costs (30,000 jobs have gone), concentrate on service rather than deal-making and make peace with the pension fund trustees – has paid off. BT has turned into a cash-gusher.
The pension fund was thrown £2bn last year and now it’s the turn of shareholders – the dividend is being hiked 12% with a promise of 10%-15% increases in each of the next three years. BT would require a further two years of increases to restore the dividend to its former height but that would still count as impressive speed.
BT would apply the same description to its installation of fibre for superfast broadband in the UK. “Our rollout is one of the fastest in the world,” claims Livingston. That boast, one suspects, is also a plea for gentler regulation on wholesale pricing for the old copper network. And you can’t blame him for reminding government that it dodged a bullet when BT, still critical to the functioning of UK economy, saved itself from a pension-induced catastrophe. (Albeit, it should be said, with large assistance from a switch from RPI to CPI-based calculation of liabilities.)
The missing ingredient to the recovery story is growth – revenues fell 2% last year and previous hopes for improvement this year are being reined in. You can’t buck the slow economy, seems to be the explanation. That may be why the share price fell 2.5% today. It makes Livingston’s 2.13m shares next week worth £120,000 less – but, in the grand scheme, that’s nothing.