BT Global Services losses narrow

BT’s troubled Global Services division has cut its operating losses by 56 percent, according to the telecom company’s first quarter results to 30 June.

The unit's losses have fallen from £124 million in the first quarter in 2009, to a £54 million loss this year. Its revenue fell three percent from £2,079 million last year to £2,007 million in this quarter.

In May, BT said it was on course to turn around the Global Services division, having cut 5,900 jobs in the unit as part of a total group cull of 35,000.

The company recently averted a pay strike planned by the Communication Workers Union by offering a 39-month pay offer worth three percent each financial year from April 2010 to March 2013, with the rise being backdated to January 2010.

As a whole, BT Group today announced a pre-tax profit increase of 17 percent to £446 million, with revenues having fallen four percent from Q1 2009 to £5,006 million, and operating costs reduced by £291 million.

BT Global Services has also seen an improvement in its operating cash outflow, which has plummeted 92 percent from £465 million in Q1 2009 to just £38 million this year. The company said that this was due to factors such as lower capital expenditure and the receipt of £200 million from a major customer contract.

BT attributed the fall in Global Services revenue to a decline in UK calls and lines revenue, the impact of mobile termination rate reductions, and “broader economic conditions”.

However, the division did see an increase in total order intake, from £1.4 billion in Q1 last year to £1.6 billion. These included contract signings with Unilever, a two-year extension contract with Connecting for Health to provide managed network services for the N3 contract, an extension with Capgemini to provide network services for the Metropolitan Police, and a new five-year contract with Nationwide to provide managed security services.

Meanwhile, Global Services’ net operating costs had fallen seven percent to £1,877 million, which it attributed to cost efficiency initiatives such as renegotiations with suppliers and rationalisation across EMEA, Asia and the US.

BT said that the UK government’s recent announcement of spending cuts represented “both opportunities and challenges”, adding that the company is “actively engaged” with the government in this regard.

Ian Livingston, chief executive of BT, told analysts in a webcast this morning: “The public sector represent around 10 percent of group revenue. We’ve seen a stopping of smaller projects but quite frankly that has been immaterial.

“Today we have re-confirmed our financial outlook for the year. We think we can help the government in a way that is also acceptable to us.”

Nonetheless, Georgina O'Toole, analyst at TechMarketView, said that although BT said that the public sector accounts for just 10 percent of its group revenues, she believed that the sector means much more to the Global Services division. For example, BT is involved in the troubled £12.7 billion NHS National Programme for IT, where it has a contract worth around £1 billion.

"By our calculations, it is reliant on UK government for about two-thirds of its IT services business," said O'Toole.

Copyright © 2010 IDG Communications, Inc.

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