BT Issues Trading Update for Ailing Global Services

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BT Group plc (BT) is today providing an update on certain reviews being carried out in BT Global Services (BTGS) and on trading in the third quarter. BT will be announcing its results for the third quarter to 31 December 2008 on 12 February 2009 and further information will be provided at that time.

In their update BT says financial, contract and operational reviews of BTGS are in progress and that BTGS EBITDA is expected to be £17m in the quarter before one-off charges. The rest of the group is performing ahead of expectations with EBITDA for the rest of group expected to be up 5% over the same period last year.

Commenting, Ian Livingston, Chief Executive of BT, said: “The first job of the new management team in Global Services and the new group finance director has been to review the financial position of Global Services and its major contracts. These ongoing reviews reflect changed circumstances and a more cautious view of the delivery of cost efficiencies and contract performance, particularly in the light of the current economic climate. We have also initiated a review of Global Services’ operations which will help us drive our cost savings initiatives and further enhance our ability to serve customers. BT remains committed to the success of Global Services and I believe these changes will create a stronger business that can deliver positive cash flow and excellent customer service.

“The performance of the rest of the group is ahead of expectations for the third quarter but unfortunately this will be more than offset by the issues in Global Services.”

BT Global Services

In conjunction with the new BTGS management team, and following the disappointing financial performance of BTGS in the second quarter, BT has initiated detailed financial, contract and operational reviews within the division.

The financial review covers the financial performance of the business and balance sheet position as at 31 December 2008. The contract reviews involve a reassessment of the estimates and assumptions associated with certain major contracts and have been conducted jointly with external advisers. The reviews cover the largest and most complex contracts and take into account a more cautious view of the recognition of cost efficiencies and other changes in assumptions and estimates, particularly in light of the current economic outlook.

BT is also undertaking a detailed review of BTGS’s operations with the aim of simplifying our operating model to enhance our ability to serve customers efficiently on a global basis and to create a cost base that will enable the division to deliver positive cash flow. Further information on this review is expected to be provided at our fourth quarter results.

As previously announced, a number of cost savings opportunities around access costs, external procurement, total labour resource, and networks and systems have been identified. We expect to see the impact of these programmes in the 2009/10 financial year and beyond and will only recognise the benefits of cost savings when we have a demonstrable record of delivery.

Third quarter trading

BT expects BTGS to report revenue growth of around 15% in the third quarter due to favourable foreign exchange movements and acquisitions. Order intake for the quarter was in the region of £1.8bn leading to a 12 month rolling order intake of £8.3bn.

BT Retail, BT Wholesale and Openreach are all expected to deliver results ahead of expectations for the third quarter, with group EBITDA, excluding BTGS, expected to be up 5% over the same period last year. We expect free cash outflow in the quarter of £(32)m, an improvement of £189m over the same period last year. Net debt for the quarter is expected to be around £11.1bn.

BT conclude their statement by adding, “We believe the actions we are taking on costs and our focus on cash flow will benefit cash generation in the group going forwards, notwithstanding the difficult economic background. The charges we expect to be taking as a result of the various reviews are expected to be largely non-cash and therefore will not affect our outlook on dividends.”

The Board intends to announce the final dividend at the time of BT’s year end results.