BT stock plunges after warning Global Services will hit profits

BT's announcement that its Global Services business is dragging the group's overall profits down below expectations sent its shares plummeting 19 per cent yesterday to their lowest level since the company floated 24 years ago.

Alongside the profit warning came the resignation of Francois Barrault, the charismatic Frenchman who for the last 18 months has been chief executive at BT Global Services, the group's technology services division. Barrault is to be replaced by Hanif Lalani, who is currently BT's group finance director.

When the telecoms giant publishes its second-quarter numbers on 13 November, group revenue will come in ahead of expectations, BT said. But both earnings before interest, tax, depreciation and amortisation (ebitda), and earnings per share, will be slightly below expectations, as cost-cutting plans at BT Global Services have not been delivered. The division's revenue will show growth of around 15 per cent year-on- year, but its ebitda, at just £120m, will be significantly lower than predicted. The revised forecast for the company's full-year ebitda margin, of between 7 per cent and 8 per cent, is some way below the analyst consensus, which was 10.9 per cent.

Ian Livingston, chief executive of BT, 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."

The company was keen to stress that its other divisions – Retail, Wholesale and Openreach – all performed in line with, or ahead of, expectations, and that the credit crunch played no role in the revised forecasts.

But analysts are wary about the future. Ian Watt, at Enders Analysis, said: "We know that the big drop-off in the economy happened after theSeptember quarter-end, so we expect business to deteriorate in subsequent quarters."

Concerns over the dividend were behind the share price collapse that saw BT stock fall as much as 29 per cent to 100p. The shares ended down 27p at 115.1p. The board is planning an interim dividend of 5.4p per share, in line with last year, BT confirmed yesterday.

But the management were tight-lipped about the future. "Ian Livingston refused to comment on the year-end dividend, and that is what has driven the share price down," Mr Watt said. "BT had two great hopes fortaking cost out of the business – 21st Century Network and improving profitability at Global Services – andneither are delivering."

Mr Livingston, who took over last summer from Ben Verwaayen, his predecessor as chief executive, faces a difficult ride. But at this stage he retains the confidence of the City. "Ian Livingston will have a more difficult job than his predecessor, but no one is questioning his competence. He has a rare combination of expertise in financial issues and marketing, so if anyone can fix it, then he can," Mr Watt said.

Mr Lalani has held a number ofsenior posts at BT, including chief executive of its Northern Irish business and chief financial officer of BT Wholesale. The group finance director post which he leaves has yet to be filled.