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BT shares plummet on margin pressure

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BT hit targets for the first quarter ended 30 June 2008 bringing in revenues of £5.1bn, up three per cent on last year. But the market is distinctly underwhelmed, marking shares down 10 per cent in early trading.

The telco made earnings before interest, taxation, depreciation and amortization (EBITDA) of £1.433bn, up one per cent on the same period a year ago.

The company remains confident it will hit revenue targets for the full year, but warned of margin pressure, partly due to currency changes.

BT saw flat performance from its consumer business where lower call revenues, and cheaper call packages, were offset by increased spending on broadband. The average household paid BT £278 a year (12 month rolling average) an increase of £4 on last quarter.

BT Global Services revenue jumped 13 per cent to £2.052bn, although currency movements accounted for a third of this growth. EBITDA before leaver costs (we assume this means redundancies) was £195m, up ten per cent.

Revenue from the wholesale business fell 12 per cent to £1.156bn, partly due to the effects of price cuts on broadband revenues, and people moving to unbundled services. BT expects more ecline over the next few quarters, as more ISPs interconnect directly. The company reckons about five per cent of the UK population can currently access its next generation broadband products. This should be up to 40 per cent by April 2009.

BT's ISP provider business Openreach saw revenues fall by one per cent to £1.306bn. External revenue was up 11 per cent to £234m but internal business, with other BT divisions, fell three per cent to £1.072bn. EBITDA was £491m, up two per cent. Access faults fell 16 per cent in the period -and BT says it is introducing a pro-active monitoring service to reimburse customers automatically if service levels are missed.

Openreach also made its first deployment of Generic Ethernet Access - fibre to the home - to a pilot site in Kent.

Looking forward BT reckons it will hit targets for the year. The telco expects margins to fall slightly in 2008/2009 but still hopes to achieve 15 per cent EBITDA margin target. Retail should show solid growth over the year while BT Wholesale is likely to continue to decline in the second and third quarter but improve in the fourth quarter. Openreach should put in a stable performance.

More from BT here.

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