Thursday, 12 November 2009

BT Global Services on the right road?

(By Richard Holway 8.00am Thurs 12th Nov 09) BT’s results for Q2 were bad but not as bad as expected. At £5122m, revenues were down 3% or down 6% on an organic, constant currency basis.

Of course, it is BT Global Services which most interests us. Certainly, at the profits level there is cause for mild optimism. EBITDA of £95m was up 53% on Q1 although still down 10% on Q2 2008. However, an operating loss of £94m was reported. The revenue situation is complex. Down 3% at £2024m at the headline’ level, down 8% organically but ‘only’ down 5% if you adjust for the ‘major contract milestone’ payment made in Q2 2008. As you can see, even at the EBITDA level, profit margins are still <5%.

Order intake, at £1.4b, was the same as Q1. But orders are for lower values and BT reports continued delay in customer decision making due to “the current economic climate”. BT GS intends to focus on “higher quality new business” which “will lead to a lower order intake compared with the last FY”. That’s sounds like a good policy to me!

The informal feedback that we get certainly indicates a BT Global Services that has faced the abyss and has realised and reacted to its significant problems. There seems to be a mood of ‘we are on the right road’. Of course, the spectre of the NHS IT programme still looms as the deadline of all deadlines fast approaches.

BT Global Services, as we have reported on many occasions, is quite different in the UK than internationally. In the UK it is much more your standard IT services player. Outside the UK it is just a network management company for large enterprises. It faced even more problems in its international operations than in the UK. They have since sold off units in France in Germany.

My own view is that BT are clearing up parts of BT Global Services for a sale when valuations improve. They at least seem to be on the right road to achieve this.

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