BT profit sinks 81 per cent

UK carrier BT posted a whopping 81 per cent drop in pre-tax profits for the last three months of 2008, and warned of the possibility of further “substantial” write downs in the coming year.

Profit for the quarter to end December 31 came in at £113m, compared to £601m in the same period a year earlier, while revenue climbed 5 per cent year on year to £5.4bn.

As expected, given the company’s earlier profit warning, BT Global Services caused much of the trouble, taking a hit of £336m due to financial and contract reviews. Ian Livingston, BT’s CEO, said: “We need to build a solid base in Global Services from which we can deliver positive cash flows. We have already announced changes in management and are making significant financial and operational changes to the business.”

The carrier had 13.6 million wholesale broadband connections (DSL and LLU) as of year end 2008, including 5.5m LLU lines, following 296,000 net additional broadband connections in the quarter. BT’s retail share of those net additions was 28 per cent, taking the firm’s customer base to 4.7 million, with a retail market share of the DSL and LLU installed base of 34 per cent.

David Molony and Richard Mahony, principal analysts at Ovum, said Thursday that they have suggested in previous commentaries that the deterioration of the performance of BT Global Services is down to slower than expected delivery of cost savings. “Today’s presentation made it clear that BT Global Services is still grappling with cost demons in its network operating review,” the analysts said.

“The surprise is that it took so long for the business and group managers to figure out that the cost equation of building and funding five- to seven-year network contracts would require more up-front spending,” Ovum added. But on the other hand, the overall impression of Global Services is still good. “Our observation about BT Global Services is that enterprises generally – and the customers we have engaged with – have by and large remained positive about BT Global Services,” Ovum said.