BT profits tumble as IT division flounders

Jul 31 2009 by Iain Laing, The Journal

COMMUNICATIONS company BT has posted a further fall in profits after its troubled IT services division continued to overshadow better trading at its retail arm.

Underlying earnings declined 3% to £1.37bn in the quarter to June 30, driven by a 66% year-on-year fall in global services, the division which carries out IT networking services for clients.

Operational problems at the business left BT more than £100m in the red last year, but chief executive Ian Livingston said there were signs of progress after global services improved earnings on the previous three month period.

It cut 2,300 jobs from the division in the quarter, part of around 15,000 posts set to go at the company this year. BT’s direct staff costs, including pension charges, decreased by 12% in the quarter to £1.2bn.

While its other businesses have been performing well, BT first signalled the problems at the global services division last October, sending its shares below their flotation price more than 20 years ago.

Shares jumped 12% after Mr Livingston said the company had made a “solid start to the year”. Underlying revenues in the division fell 4% to £2.1bn, but total order intake was £1.4bn.

In retail, turnover declined by 2% to £2.11bn in a mature market, driven by a reduction in calls and lines revenues. However, BT said it added 78,000 broadband customers in the quarter, taking its total to 4.8 million, as underlying earnings rose 26% to £476m.

First quarter profits, including one-off items, were £272m, down 45% on a year earlier. Analysts at stockbrokers Killik described the update as reassuring, but said BT’s £5.8bn pension deficit remained a worry.