Eurozone crisis takes its toll on BT profits

Telecoms giant among several British companies which are being buffeted by the turmoil in the single currency
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The Independent Online

BT has warned that international profits have tumbled, as wider evidence mounted that the eurozone crisis and the latest shock 0.7 per cent slump in the UK economy are taking a heavy toll on British companies.

The telecoms giant admitted that headline profits, known as Ebitda, fell 14 per cent in the past three months at its Global Services arm, which supplies customers such as Tesco and Rolls-Royce in the UK and abroad.

"Continental Europe has got worse rather than better," declared BT's chief executive Ian Livingston, with Spain particularly difficult. "There's not going to be a quick recovery."

Meanwhile, the FTSE 250 media and events company Informa slumped into the red after taking a hit of more than £100m on the sale and writedown of its European conference businesses.

Informa's chief executive Peter Rigby said it is being hit by "continued uncertainty and volatility in Europe with negative growth in real terms".

Shares in BT dropped as much as 7 per cent and Informa up to 8 per cent, even before news emerged from the Office for National Statistics of a worse-than-expected 0.7 per cent plunge in GDP.

Mr Livingston said there had been a marked change in behaviour by corporate clients, notably financial services firms in Europe and America.

They are taking longer to sign contracts and are holding on to existing technology, rather than upgrading.

BT Global Services won only £1.1bn of new business in the period, against £1.6bn a year earlier. Significantly, the biggest such contract BT won was worth "only" £50m.

"That's unusual for us," said Mr Livingston, who explained BT would usually expect to win several contracts worth more than £100m in the quarter.

BT Global Services has had a troubled past, with a series of profit warnings in 2008 and 2009 and its boss abruptly departed, but it has performed better in recent years.

Despite the eurozone, Mr Livingston said Global Services' Ebitda should still increase for the full year and the outlook for the group is unchanged.

However, analysts at Jefferies bank said BT's revenue target "appears challenging" given the problems in Europe. Bank of America Merrill Lynch described the results as "disappointing".

In another worry, Mr Livingston confirmed he expects Ebitda in the 2013-14 financial year to be flat because of his £738m bet on Premier League football pay-TV rights. Mr Livingston said he had "no regrets in the slightest", amid speculation that BT expected to win more than 38 live games a season against BSkyB's 116.

BT group revenues fell 6 per cent to £4.48bn in the three months to June but profits rose to £584m against £517m as a long-running cost-cutting programme improved margins.

Informa's decision to sell and write down its European conference businesses cost it dear, as the group swung to a pre-tax loss of £27.4m in the six months to June, against a profit of £66.5m a year earlier.

Leaving aside exceptional items, Informa was profitable and Ebitda edged up marginally, but revenues tumbled 2.4 per cent to £619.6m.

"We, like many businesses, have seen trading conditions toughen," said Mr Rigby, although he is "confident" of meeting full-year profit forecasts.

Other UK firms, such as Vodafone, have warned recently about the impact of the eurozone crisis. Shares in BT ended down 7.2p at 210.2p yesterday while Informa closed down 19.5p at 350.4p