BT shares hit record low as Global Services profits plunge

Group blames operational failures, not economic crisis

BT's global services arm suffered a 92 per cent plunge in profits between October and December as costs at the division spiralled out of control. The news caused the share price to touch an all-time low.

The group admitted in a surprise update that the struggling division had failed to deliver the cost savings expected, leading to "one-off charges" of £340m. It blamed operational failures at the business, rather than the wider economic downturn for the issues.

Of the Global Services' 17 major contracts, overspending on servicing just three led to the huge writedowns. The group cautioned that two contracts were still under review, which "may result in further substantial one-off charges in the current financial year".

BT boss Ian Livingston said he wanted to "sort things out" by the end of March. While unlikely, the group refused to rule out any contracts being terminated.

Along with the update on Global Services, BT released a preview of its third- quarter earnings. While the rest of the group is expected to outperform, the troubled business networks division's earnings before charges are expected to fall to £17m, down from £215m in the third quarter of the previous year. This was "primarily due to insufficient delivery of cost savings and the continued decline in the higher-margin UK business".

BT said it remains committed to the division and the overhaul will "create a stronger business that can deliver positive cash flow and excellent customer service". It was the second warning relating to Global Services' performance in three months, and sent shares at the group down 9 per cent. They closed 11.2p lower at 111.8p.

The previous warning had prompted the departure of François Barrault, the division's chief executive. He was replaced by BT's finance director Hanif Lalani, who has the job of getting Global Services back on track

Mr Livingston said the first job of the new management was to review Global Services' financial position and its major contracts.

The struggling business is under financial, contract and operational reviews. It is also scrutinising the division "with the aim of simplifying our operating model" and cutting costs.

"These ongoing reviews reflect changed circumstances and a more cautious view of the delivery of cost efficiencies and contract performance, particularly in the light of the current economic climate," he said.

The group said yesterday that the rest of its business had performed ahead of expectations, with earnings expected to be up 5 per cent on the previous year. "The performance of the rest of the group is ahead of expectations for the third quarter but unfortunately this will be more than offset by the issues in Global Services," Mr Livingston said.

BT announced in November it was to axe 10,000 jobs by April after announcing an 11 per cent drop in profits in the second quarter. Of those to be cut, 6,000 would be "indirect" labour, such as contract or temporary workers.

BT Global Services: What went wrong?

BT Global Services has seen a painful turnaround, from the jewel in the crown to the one division that is heavily dragging down profits. It offers outsourced communication networks to multinationals, providing IT infrastructure and managing data across their global operations. It has 17 major contracts, with clients such as Unilever, Procter & Gamble, Novartis, KPMG and Thomson Reuters. It employs 37,000 in 53 countries, although its reach stretches to a further 120. The division recorded £7.9bn in sales in 2007, 8 per cent up on the previous year. Yet BT had to issue a profit warning in October after the division missed its targets, like yesterday, blaming a failure to cut costs and a decline in its high margin business in the UK. François Barrault, head of BT Global Services, resigned, and was replaced by Hanif Lalani, group chief financial officer, who is trying to deliver on the division's promise.

Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific