BT profits slump 71 per cent
Monster telco hits the trough
BT has released profits of £186 million, down 71 per cent year-on-year. Revenues actually went up 15 per cent to £5.4 billion but thanks to a doubling of debt interest repayment, losses at its European mobile companies and Concert's ongoing money burning, the profits are lower than we've ever seen.
Shares fell initially by 4 per cent to 444p but since then the market has seen good sense and pushed it back up to 454p (as of 11.30am), a drop of 0.8 per cent. Why good sense? Because these results were entirely inevitable and should mark the low point after two shaky years.
Debt interest doubled this quarter (year-on-year) from £235m to £474m, taking a huge chunk of profit with it. But let's not forget that the company's ridiculous £30 billion of a few months ago has led to the resignation of the FD, removal of the chairman and downgrading of the CEO. New chairman Sir Christopher Bland has dedicated himself to removing the debt burden since he took over and has done a sterling job of it.
Most of the reduction was the sell off of assets in Japan and stakes in Europe. The result of this is to make figures including goodwill or exceptional items beyond interpretation. We'll have to wait until the next quarter and the one after that to get a feel for how well BT is actually doing.
Other important figure are the losses by the two European mobile companies Telfort (Netherlands) and Viag Interkom (Germany). These amount to £154 million and took BT Wireless into the red, from £45 million last year to £95 million loss this year (a difference of £140 million). Again, this doesn't unduly worry us since every mobile company in Europe is picking up heavy debts with the hope of hitting the 3G jackpot in the next few years. Perhaps BT needs to look closer at them, but restricting them now would be damaging for the future.
And then of course there is the AT&T joint venture Concert which continues to lose money hand over fist (£81 million this quarter). Sir Christopher Bland has already made it clear that Concert will be the next to go but first there are some very tricky negotiations with AT&T.
On the plus side, BT Retail has increased its revenue and profit. But digging deeper, this has come from sales to other BT companies and external sales have actually dropped. BT's greatest fear - the reduction in income from its network - is coming true but was completely inevitable. It complains that the introduction of the fixed-fee Internet access programmes have cut away its profits but welcome to the real world BT, you're no longer a monopoly.
The company needs to boost external sales because network call income will keep falling. The faster it strikes this balance, the faster both BT and UK consumers will benefit.
BT Wholesale is much the same as it was a year ago. However, BT Ignite, its Internet services arm, is doing good business. BT Openworld is also getting better but far too slowly. This will leap soon, but if BT is to get the most out of it, it needs to keep a close eye on the Internet access arm.
And that's about it. Bland summed it up basically by saying the company's performance was "satisfactory". It was, and nothing else. But then the one man that seems to get something done (Bland) has been concentrating almost entirely on cutting the debt.
Once Concert has been sorted out, we will hopefully see CEO Bonfield kicked out and replaced by a man with vision and then Bland can turn his attention to shaping up the rest of the company and rebuilding morale. BT Wireless will soon starting functioning as a properly separate company and it will be interesting to see what approach it comes out with.
Which leaves Bland to prove himself as more than a simple troubleshooter by making BT's networks a simple and friendly choice for other companies and by building the Internet business - surely the shining white knight for BT's future (at Future BT).
All these results tell us is what we already know. It's the next two sets that will tell us where BT is going and if it's moving fast enough. ®