BT profits down almost a third

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BT today released its third quarter results, reporting a drop in profit before tax by almost a third (30 per cent) due in part to a large number of exceptional restructuring costs.

Profit before tax for the period stood at £447 million, a stark contrast with the £639 million the company reported in last year's third quarter.

Revenue was reported as £5.154 billion - just one per cent better than the same period a year ago - while operating profit, excluding special items, was up by five per cent on 2006 to £582 million.

"This has been another solid performance. We have delivered our twenty third consecutive quarter of year on year earnings per share growth," said Ben Verwaayen, BT's chief executive. "BT Global Services has shifted up a gear, delivering real growth in EBITDA margins. We won total contracts worth £1.9 billion in the quarter, and revenues outside of the UK grew by 22 per cent."

He added: "We remain the UK's number one retail broadband provider with 35 per cent of the installed DSL and LLU base, and BT Vision customers more than doubled in the quarter. We expect continued growth in revenue, EBITDA, earnings per share and dividends, and a significant free cash inflow in the fourth quarter."

Analysts disagree with BT's talk of solid performance.

"The answer to why we are disappointed is all in comparisons," said Mike Cansfield, telecoms strategy practice leader at analyst Ovum.

"If we look back 12 months, BT revenues increased in the comparable quarter by five per cent, EBITDA increased by 2.2 per cent, and profit before taxation (before specific items) increased by 13.1 per cent. All comparisons are all year on year. Based on these metrics, the only conclusion that you can draw is that the growth in performance at BT is slowing."

Cansfield added that BT's global services arm appears to be thriving, so the problems must lie elsewhere and with wholesale revenue falling, the finger is already starting to be pointed.

"So if it is not global services, where are the problems? Retail has had another solid quarter, continuing the gradual improvement trend established some time ago...from this it would be easy to point the finger at wholesale, but to do so would be to miss the point. Twelve months ago the comparable wholesale metrics were mostly positive (operating profit was the exception), and in twelve months time most of the factors noted here will have passed through and performance is expected to have stabilised. So this is more a market adjustment rather than a trend," he said.

"So what is BT going to do about it? It is pinning its hopes on the transformation of the business. Today it referred to three new connectivity products coming out of 21CN (Ethernet, Broadband Connect, Converged Broadband Voice) which are interesting up to a point, but the one that caught our eye is the innovation platform to enable BT, communications partners (other operators) and third-party developers to create software applications on 21CN. This type of collaborative approach to innovation is critical if BT is to grow the top-line."

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