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In our comment BT Global Services: More profits to follow?, we were pleased to see BT Global Services finally move into operating profit in FY12/13. It did however emphasise BT's rather conservative strategy of lowering the cost base, improving customer service and targeting additional growth through investment in global assets, industry-specific solutions, professional services and innovation.
The Q1 results for the new financial year, showed a further year on year decline of 3% in underlying revenue, to £1.7bn, which actually suggests an improving performance - our estimates show BT's UK business declined by 7% last year (FY to March 2013). Order intake also looked positive, being up 49% at the top line also to £1.7bn. Quarterly figures are however volatile and Q1 orders were boosted by the re-sign of the Credit Suisse network outsourcing deal, which would have been agreed only after tough negotiation on price. EBITDA was up by 1% on an underlying basis, after further cost reductions. Capex fell yet again, by a further 13%.
The BT management warned that Q2 for Global Services would be depressed due to the timing of contracts but stated that this would be reversed in the second half. BTGS's pending termination at Sandwell won't help matters however (see Sandwell terminating IT/BP contract with BT). This does not sound too positive for progress for the full year for Global Services.
However, the cautious, cost-cutting strategy of BT Global Services can only go so far. Customers are moving on, exploiting new business models, embracing innovation in cloud computing, mobile technologies and many other areas as well as building relationships with a host of new suppliers. BT Global Services CEO, Luis Alvarez needs to give greater emphasis to the other part of his declared strategy, that of investing in the areas that will generate growth and margin in the medium term. To be successful he needs to provide his major customers with clear evidence that BT Global Services can be their technology, IT Services and business partner as they enter the next phase of their development.
Overall BT results were slightly ahead of expectations, with revenue and EBITDA basically flat at £4.4bn and £1.4bn respectively. The shares have been stellar performers, up 48% year to date and looking forward, attention will be focused on the Group’s television and sport ambitions and their implications for the UK broadband business.
