BT profits slump 81% amid IT hang-ups

A fourth profit warning in six months for BT, after more problems in its ailing IT consultancy arm...

Last Updated: 31 Aug 2010

More bad news from BT this morning: the telecoms giant is seeing its profits hammered by the disastrous performance of its Global Services division, which provides managed IT services for corporates. This made a loss of over £500m in the final quarter of last year, dragging BT’s overall profit down an eye-watering 81% to £113m. As its shares tumbled again today, BT is facing up to the harsh fact that the division that was supposed to be its biggest growth driver is looking increasingly like a giant millstone around its neck...

BT has already been forced into three previous profit warnings as a result of Global Services’ underperformance – in the last few months, it’s been writing down the value of its various corporate contracts, effectively admitting that it either pitched them too cheaply, or over-estimated their value (and possibly both). The Government’s calamitous NHS IT project is just one of the turkeys currently lurking on BT’s books, but it’s by no means the only one – BT has also seen 15 other big contracts slump in value. All in all, this has already led to a total write-down of £336m last quarter – and CEO Ian Livingston admitted today that this figure could end up being a lot higher.

To make matters worse, the rest of BT actually seems to be doing pretty well. The retail division saw operating profits climb 9%, the wholesale arm enjoyed an 18% jump and Openreach was up 7%. With a little help from favourable exchange rates, this pushed overall group revenues up 5% to £5.4bn – and if you strip out the Global Services arm, the business actually enjoyed profit growth of 5%, its fastest for five years.

Unfortunately, much though Livingston might love to ignore Global Services, it’s easier said than done given the catastrophic impact it’s currently having on BT’s bottom line. This latest bit of bad news pushed BT’s share price to a new low of 97p this morning, meaning that the division’s travails have now wiped £10bn off BT’s share price in the last year. Whoops. Admitting today that recovery was taking longer than expected, despite a change in management, Livingston promised ‘decisive action’, to include ‘significant financial and operational changes’.

Let’s hope he’s right, or his investors' patience might start running out pretty rapidly...

In today's bulletin:
FSA hits back in Crosby HBOS row
BT profits slump 81% amid IT hang-ups
Game over for Eidos as Lara Croft taken captive?
Spanish football's finest beat England in earnings too
Kellogg's is, like, out of order, man

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