BT Global Services - Part 6

(By Richard Holway 4.00pm 13th Apr 09) Last week I was emailed by a journalist who had been notified by a BT contractor that his rates were being cut by 30%. I was asked if this was true. I couldn’t verify it. But, judging by the Press Association report of 10th Apr 09 - BT cuts contractor wages – it now seems to have been confirmed. A few months ago BT Global Services ended the contracts of some 6000 IT contractors. This is on top of the one-year pay free for all BT’s workers.

Although a 30% cut is on the high side, Capgemini and others have already gone down similar routes. Also last Friday it was announced that Qinetiq was also introducing a pay free.

On the subject of BT Global Services, I was quoted in Silicon.com last week - BT deal quashes rumours of IT pull out – saying that “there was talk of BT having to make £1.7bn-worth of contingencies on its NHS IT contracts". I pointed out to the reporter, Nick Heath, that the £1.7b of contingencies related to all 17 ‘problem’ BT Global Services contracts – not just the NHS. And that the £1.7b wasn’t my figure anyway.

For the record, can I requote my ‘original’ HotViews piece of 2nd Apr. “It was not just the ex-Fujitsu sites that were being negotiated - it was the whole exposure that BT had to the NHS IT Programme. Readers will recall that BT Global Services had already had to announce provisions of £340m towards contract overruns on 15 out of 17 ‘problem’ contracts but had not announced the provisions required on the remaining two - one of which was the NHS. Rumours of the likely total provisions ranged all the way up to £1.7b. The fact that this agreement was nailed in the very last hour of BT’s Financial Year means that a more realistic provision figure can be announced with BT’s finals in May.”

That is still the situation as far as I understand it. Who knows what the total provisions will be but I wouldn’t be surprised if they topped £1b. It is all a pretty sad indictment on BT Global Services' previous senior executives that this situation has arisen.

There are many articles on BT in the weekend papers. Perhaps one of the more ‘interesting’ is The Agenda piece in the Sunday Times.- Accountants now make the calls at BT. The article seemed to pin all the blame on Francois Barrault – which seems a lttle unfair as the problem contracts pre-date his 18-month tenure as CEO by several years. However, I did rather like “We are discovering it was a trick of the light. In the Verwaayen era it appears BT was long on strategy, spin and optimism, but short on financial delivery”.

The Sunday Times article included the following paragraph:

"Sir Michael Rake, BT’s chairman, and Ian Livingston, his chief executive who took over last June, will use next month’s results to draw a line under BT’s past and tackle Global Services once and for all. It could still be a growth engine, but not if the overoptimistic profit assumptions built into its two largest contracts aren’t rewritten. In good times these operations can be sold as one-time sales. If that was true today it would be the same as BT’s market value. That is before you include the group’s other divisions."

I’m not quite sure where John Waples (the author of the piece) got this 1x revenue figure from! CSC trades on a PSR of 0.35 as does Logica. Capgemini is on 0.42. HP paid $13.9b for EDS’ $22.1b – ie a PSR of 0.62. Even the highest of the lot, Accenture, is on 0.75. If anyone currently valued BT Global Services at more than a PSR of 0.5, I’d eat my hat.

I guess we will all have to wait until the May full year results announcement to learn the full 'bloody' picture.