Baptism of fire as BT slumps

Profits down and a plunging share price - not the greatest start for new BT boss Ian Livingston...

Last Updated: 31 Aug 2010

BT has been the biggest faller in the FTSE 100 this morning (amid some stiff competition, given the numbers of gloomy results statements out there) after reporting a worse-than-expected 7% fall in pre-tax profits in the first quarter of its financial year. And this was despite the fact that revenue was actually up 3% - showing that BT has been struggling to maintain margins. Livingston only took over from Ben Verwaayen two months ago; looks like he’s been thrown in at the deep end...

Perhaps the biggest disappointment for BT in today’s results was the poor showing by its Global Services division, the IT services business which has been a big driver of growth in recent years. BT reckons it can achieve a 15% profit margin in this part of its business – but it only managed 9.5% last quarter, and it’s not expecting to do any better before the year is out. Admittedly the division has been investing in its overseas operations, but investors seem increasingly sceptical that it’s ever going to get anywhere near this ambitious margin target.

And that wasn’t the only bad news. Much of the revenue increase was apparently due to currency fluctuations, which isn’t much long-term use to anyone. What’s more, its massive £37bn pension fund has swung into the red thanks to the recent stock market malaise – a £1.4bn surplus last year has turned into a £600m deficit this year. There were some reasons for optimism – the retail division (Livington’s old beat) seems to be doing pretty well, with revenue up 3% as BT confirmed its position as the UK’s top broadband supplier – but generally, there wasn’t much for the new boss to shout about. So it's no wonder BT's share price plummeted 13% today.

The outlook looks a little better for another man who is new to the top job and has one eye on the broadband market – Jeremy Darroch at BSkyB. Although the satellite broadcaster ended the year £127m in the red (thanks largely to its disastrous investment in ITV, which has already cost it over £600m), revenues rose 9% to £5bn. Subscriptions were up 11% for the year after another 92,000 customers signed up last quarter (more than analysts were expecting), and it continues to gain ground in the broadband stakes, adding another 200,000 users in the three months to June. ‘We have continued to grow strongly in a more difficult consumer environment', Darroch said this morning.

So although its share price also slid this morning, at least the long-term prospects look fairly encouraging. Which is more than can be said for BT at the moment...

In today's bulletin:
Centrica profits fan the flames
HBOS bounces - but housing worries remain
Baptism of fire as BT slumps
Nintendo consoles itself with Wii success
Commuter jetpack prepares for take-off

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