Verwaayen dials out on a high note as BT results beat analyst expectations

Chief executive leaves after six years with rises in revenue, cash flow and broadband customers
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The Independent Online

Ben Verwaayen, the out-going chief executive of BT, bowed out on a high note with consensus-beating fin-ancial results that pushed the share price up by more than 5 per cent by the end of the day.

Overall revenue for the year to March was up by 2 per cent to £20.7bn, within which traditional sales fell by 1 per cent but new wave growth was up by 9 per cent to £8bn. Although pre-tax profit was broadly flat at £2.51bn, it fell within expectations. Free cash flow rose by 11 per cent to £1.5bn and the dividend rose by 5 per cent to 15.8p.

Crucially, as the former telecoms monolith tries to reinvent itself as a converged communications provider and global IT services company, telephone calls now represent less than 11 per cent of the company's revenue, while technology services bring in 22 per cent.

Broadband continues to be central to the fortunes of the group's Retail division. Some 150,000 net new customers in the fourth quarter, taking the total to 4.4 million, helped push revenue up by 2 per cent to £2.2bn, the third successive quarter of growth, despite a 4 per cent fall in the traditional voice call market. Operating profits also rose, by 12 per cent to £272m, in the final three months of the year.

Key areas of interest in yesterday's figures were the performance of the Global Services and Wholesale divisions. BT's share price fell by nearly 10 per cent in February when the group's third-quarter numbers missed revenue predictions, largely due to an 11 per cent fall in the Wholesale revenues division. The picture is still gloomy, as the division's market continues to be cannibalised by the local loop unbundling process – whereby alternative broadband providers can install their own equipment in BT telephone exchanges. But revenues down by 12 per cent to £1.18bn are in line with expectations.

Once again, the Global Services division is the high spot, with revenue up 10 per cent to £2.2bn, the fastest rate of growth for two years, and operating profit up by 30 per cent. With an earnings margin up 0.4 percentage points to 13.7 per cent, the target of 15 per cent by 2009/10 is looking less elusive than sceptics have predicted.

BT's strong performance is testament to the resilience of both the UK economy and the telecoms sector in the current financial uncertainty, according to Mr Verwaayen, who hands over to Ian Livingston, the former head of BT Retail, next month. And strong broadband sales suggest consumer spending is not as weakened as some commentators suggest, he says. "The banking sector forgot the price of risk and created a financial crisis in their world but that doesn't necessarily mean it will affect everyone else," Mr Verwaayen said. "I have a hard time bringing together two things – there is a slowdown and there is reason to worry, but that does not overshadow our resilience."

BT is certainly in better shape than when Mr Verwaayen arrived in February 2002 to turn around a corporation crippled by £30bn-worth of debt. Since then, BT has been central to turning the UK broadband market into one of the most competitive in the world, Global Services has become the powerhouse of the group's expansion, and the corporation has seen revenue growth for 17 consecutive quarters.

Mr Verwaayen says his most significant achievement is cultural. "Running a business is always about people – it is never about the structure or the technology, it is the people that are the source of the highest satisfaction and the highest frustration," he said. "Six years ago, BT was filled with people following the rules even when they were crazy. It has turned into an organisation with enough confidence and focus for people to step aside from the rules to do what is required."

Despite the positive response from investors yesterday, concern remains that the group is stagnating. Scott Morrison, an analyst at Gartner, said: "There is not clear, unambiguous growth across the whole business. The change of chief executive is good timing because it is a move from a gregarious, expansionist leader to someone more focused on the numbers and on the underlying business."