BT profits up 15%

BT announced its full year results Thursday morning, with headline profits up 15 per cent at £2.49bn on revenues up 4 per cent at £20.2bn. The company announced a dividend of 15.1 pence per share, an increase of 27 per cent on last year and promised to buy back a further £2.5bn worth of stock by March, 2009.

The carrier breaks out its results from “traditional” (fixed line voice), and “new wave” businesses (IT services, mobility, ISP operations, and its international carrier activities). Revenue in the legacy business fell by 3 per cent, while the newer operations grew some 14 per cent. They now account for 40 per cent of total revenue, slightly higher than at this time last year. Growth in revenue came almost entirely from major corporate customers and wholesale/global carrier operations.

Local loop unbundling has been a major source of competition to BT Retail as an ISP, but the company is putting a brave face on it and points to a 31 per cent increase in revenues from its wholesale IP operation. BT claims the rise in volumes at Openreach and UK Wholesale outweighs the reduction in margins.

The 21CN project is currently pushing up CAPEX, which stood at £3.2bn this year and is expected to continue at this rate until the end of the decade. 21CN was also responsible for a 7 per cent hit to operating profits at BT Wholesale due to the depreciation of the assets it will replace.

Operating cash flow for 2006-2007 was £5.2bn, excluding a £376m tax refund in the fourth quarter. BT put £520m of that into reducing the FRS17 deficit in its pension fund, which is now down to £300m from £1.5bn a year ago, and paying off a convertible bond issue early.

Technical highlights include a surge in sales for MPLS networking, with revenues up 37 per cent to £179m, and the first 21CN nodes being installed outside the UK, as well as the completion of customer migration onto Metro Ethernet. BT Global Services claimed it had won £3.4bn worth of orders during the fourth quarter.

Mike Cansfield, telecoms practice leader at industry analyst Ovum, said: “Looking at the financials, there is not a great deal to say other than BT has pulled off a clean sweep of positive numbers. These results are consistent with a well established trend and not a grand finale. Five years ago BT promised to put broadband at the heart of the new company. This quarter BT announced it had 10.7 million wholesale broadband connections overall and 3.7 million in Retail making it number one in the retail broadband market. Mission accomplished.”

Cansfield said that transforming the internal workings of the company is a complex but manageable task. What will be challenging for BT now is to explain to its wholesale and retail customers the full range of its new capabilities. “A major marketing push to promote the BT Vision IPTV service began in the UK last weekend. This will be an interesting barometer to see if BT can perform the external transformation required to grow the top-line at a faster rate,” he said.