Profits slump but share price rises at BT

Shares in the former telecoms monopoly are up almost 10%, despite a 45% drop in Q1 profits.

Last Updated: 31 Aug 2010

Yes, that’s right. Shares rose 11p to 124p, their highest level since January, on the back of this morning’s Q1 results. That’s despite the near halving of profits – down to £272m – and an even more alarming near-doubling of the already hefty pensions deficit to £5.8bn. That’s gravity defying stuff, however you look at it. 

So what’s behind this apparent anomaly? Well, for a start the results are not quite as bad as they first appear; revenues are actually up slightly by 1% to £5.2bn. That’s not much, but it is better than BT CEO Ian Livingston predicted, so it counts as good news. And the pension fund black hole, whilst a serious problem, is largely a paper phenomenon caused by changes in the way in which BT does its sums. The group has also been busy cutting costs and expenditure – witness its plans for 15,000 job cuts this year – and improving its cash flow.

There are also hopes that the worst may be over at its woefully badly-performing Global Services division, which cost BT a £1.3bn write down in Q3 last year alone. 2,300 jobs have gone – including most of the division’s senior management – and cost control has been tightened up considerably. Things are still not exactly rosy there – it made an operating loss of £124m this quarter - but Livingston seems confident that it is moving in the right direction at least. ‘Global Services is making progress, although there is still more to do’ was his verdict.

BT Retail – the phone and broadband provider – posted good numbers, with 30% more profit despite a 2% fall in revenue, and signed up 78,000 more broadband customers. BT TV on-demand service continues to struggle, however, adding only 38,000 new subscribers in the same period. 

So not bad, but not all that great either. It says something for both BT’s skill at expectation management – and for the rather over-optimistic mood abroad in the markets these days - that this qualifies as reason enough for such a significant rise in BT’s share price.

But at least Livingston and all his BT boys and girls did have one cause for unqualified celebration this week: BT has been voted one of the most lesbian and gay-employee friendly companies in the world. Straight up.

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