Cleaning up at BT Global Services

OvumThe star performer of the group for in BT’s annual results, announced yesterday, was BT Retail. Although it reported near flat revenues for the year, it still delivered a 9.33% growth in EBITDA over the previous year. Call and line revenues continue to decline, but UK broadband still  performs well.
Given the deteriorating economic environment, the pension liability fell into a deficit of £2.9 billion net of tax over 2008 and BT announced additional funding of £525 million, as agreed with the regulator. The dividend was cut sharply from 15.8p to 6.5p. While the top-line performance was good, before contract and financial review charges BT Global Services’ gross profit fell by 9.26% and EBITDA more than halved over 2008.
The decline is most probably down to falling prices in core network services, more prudent accounting practices and currency factors.
More jobs to go
This financial performance is disappointing, the write-down of £1.639 billion is the immediate concern, although as these costs have already been incurred, there is limited impact on the free cash flow of the business. In response to its weak financial performance, BT announced that this year there will be a similar level of job cuts to last year, which ended up at around 15,000.
The operator also said it would restructure of Global Services into UK Domestic (with 1,100 customers, revenues of £2.5 billion and EBITDA of £0.4 billion) led by Mark Quartermaine, multinational customer (MNC) business (revenues £3.5 billion, 400 customers and EBITDA of £0.2 billion) led by Michael Boustridge, and GS Enterprise. This a portfolio of non-UK businesses, led by Luis Alvarez, which specialises in domestic telecoms and professional services to corporations and the public sector within their domestic markets (revenues of £2.8 billion and EBITDA of £0.2 billion).
The appointments are all strong ones in our opinion.
Regional focus shows customer flexibility
The highlights of its new operational model are that the business is consolidating group functions in sales, marketing and professional services. The creation of the BT Global Services Enterprises unit offers a more locally driven portfolio.
Other operators are not doing this and we will need to see the impact on global delivery capability, we understand that MNCs and UK Domestic will continue to be serviced in the same way as they were before. This could be good news for some customers.
The regional focus also extends to systems – for example, the business has given up on one single global billing platform. Improving the bid process, consolidating customer support centres by investing in few but larger ‘regional’ operational hubs and the continued search for network efficiencies are also initiatives designed to reduce cost and commercial risk.
In addition, £200 million of business is being transferred from BT Global Services to BT Business (Retail), which emphasises further the more localised approach of the business.
We reported in our last comment on BT Global Services that multinational customers are standing by the business and the good will towards the business was strong. We still believe that this is the position, but clearly this latest set of results will test their faith. BT Global Services closed significant contracts last quarter, and in Ovum’s contract tracker we found it to be the best performing operator at the end of 2008.
We expect that BT Global Services will partner more, and we also expect changes in mobility too – the Vodafone BT partnership has more to offer both parties, so it will be interesting to watch how this develops.