BT issues surprise profits warning

Telecoms giant BT issued a surprise profits warning today after its division providing services to multinational companies failed to hit targets.

BT said its Global Services arm continued to grow strongly but the slower-than-expected delivery of cost savings had impacted on earnings.

It also blamed a continued decline in higher margin UK business.

As a result, underlying earnings for the group in the second quarter of the financial year will be slightly below expectations, BT said.

All the company's other divisions, including BT Retail, have continued to deliver results in line with or ahead of expectations, it added.

BT said group finance director Hanif Lalani would replace Global Services chief executive Francois Barrault, who has resigned.

BT shares lost almost a fifth of their value following the update.

It is an early blow for group chief executive Ian Livingston, who took over from Ben Verwaayen in June. Mr Livingston said: "BT is performing in line with or ahead of expectations in all but one of its divisions, so the results in BT Global Services are particularly disappointing.

"We acknowledge that the performance in this part of the group is unsatisfactory and are committed to taking decisive action to rectify the situation."

He said the new management team at Global Services would speed up the implementation of cost efficiency and margin improvement initiatives.

The division provides global communication services for a range of international companies, including consumer products firm Unilever and news and information group Reuters.

BT said revenues for the division remained strong, with a 15 per cent year-on-year rise in the second quarter as customers expanded into areas such as China and India and sought to outsource more of their operations.

However, the company warned that underlying earnings of around £120 million will be "significantly below expectations".

BT will provide a fuller update at half-year results on November 13, but it warned shareholders there would be no increase in its interim dividend.