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BT profits still hampered by Global Services

As the telecoms and IT group announces its quarterly results, Global Services is 'clearly still coming out of intensive care', according to one analyst
Written by David Meyer, Contributor

BT's Global Services arm is still dragging down profits at the telecommunications and IT group, which posted its quarterly results on Thursday.

According to the results, BT's revenue for the financial first quarter, ended 30 June, went up by one percent, compared with the same quarter last year — £5.235bn, rather than £5.177bn. However, earnings before interest, taxes, depreciation and amortisation (Ebitda) were down by three percent, from £1.417bn to £1.371bn.

"We have made a solid start to the year against a background of challenging trading conditions," BT chief executive Ian Livingston said in a statement. "BT Global Services is making progress although there is still much to do. The rest of the group continues to perform well generating Ebitda growth of six percent."

Global Services serves large multinational corporations and the public sector, while small and medium-sized customers fall within the BT Retail division.

The Global Services division's quarterly earnings were down by 66 percent, from £182m to £62m, although its revenue rose by four percent. It has been performing poorly over the past year, and has recently been the focus of a major cost-cutting drive.

"I thought the heat was a little bit off BT Global Services this time because of all the write-offs that were taken at the end of last year," Ovum principal analyst David Molony said. He added, however, that Global Services was "clearly still coming out of intensive care".

"Global Services is still definitely dragging BT down on group operating profitability," Molony said. "Group operating profit was down 13 percent, and that was nearly all down to Global Services, because BT Retail operating profit was up 30 percent. Wholesale was down three percent, and Openreach was down two percent."

At the time of writing early on Thursday afternoon, BT's share price had risen by around 10 percent within the day, to £123.90. Molony said this rise could be attributed to a "certain feeling of a little bit more optimism looking ahead".

BT 's outlook for the full financial year remains unchanged. "We continue to expect a decline in revenue of four to five percent, a reduction in capital expenditure and operating costs of well over £1bn and to generate group free cash flow (before pension deficit payments and after the cash costs of BT Global Services restructuring) of over £1bn in 2009/10," the company said in its statement.

Gartner research vice president Scott Morrison said in a statement: "While the rest of 2009 is likely to prove less positive from a revenue perspective, BT is no different from other carriers in this respect.

"But the restructuring isn't complete yet, so BT still has operational challenges ahead, in particular how it shrinks its cost base faster than the expected fall in revenue, and where it takes the new more-focused strategy in terms of streamlining its range of products and services."

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