BT Shares Fall on Core Earnings Slump

Britain's BT Group saw core earnings slump 9 percent in the third quarter and pre-tax profits crash 81 percent due to problems at its global network services unit, while its pension swung to a big deficit.

BT said it would work to improve profitability at Global Services, save costs and limit capital expenditure to hit a new target of generating free cash flow of over 1 billion pounds ($1.44 billion) next year.

Its pension scheme also had a deficit of 1.7 billion pounds net of tax against a 2 billion pound surplus at the end of March 2008.

Britain's biggest fixed-line telecoms provider said third quarter revenues had risen 5 percent due to favorable currency exchange and acquisitions, but that earnings had been hit by the previously announced problems at Global Services.

The unit, which provides IT services for corporate customers, has been under review since the former state telecom group issued an earlier profit warning at the end of October due to a lack of cost efficiencies at the unit.

The group then warned in January it would take charges of around 340 million pounds at its Global Services unit for the quarter that would outweigh better-than-expected results at the rest of the group.

The group reported third quarter underlying earnings before interest, tax, depreciation and amortization (EBITDA) and before one-off charges of 1.34 billion pounds ($1.93 billion) for the three months to Dec. 31, down 9 percent.

Revenues rose 5 percent to 5.44 billion pounds but profit before tax was down 81 percent at 113 million pounds and earnings per share was also down 81 percent.

It said it would aim to hit group free cash flow, before any pension deficit payments, of over 1 billion pounds next year, due to its focus on improving Global Services, cost savings and control on capex.

It cut 9,500 jobs in the nine months to December 31 and said it expects to hit its target of over 10,000 by the end of the year.

"Three of our businesses performed ahead of expectations in the quarter and the group, excluding Global Services, delivered the best year on year profit growth for five years," Chief Executive Ian Livingston said.

"However, as previously announced, the group results have been severely impacted by the performance of our Global Services division.

"With our focus on improving the performance of Global Services, continued cost savings and control on capex across the group, we expect group free cash flow, before any pension deficit payments, to be over 1 billion next year."

Livingston said however that the Global Services unit would see fourth quarter cash inflow significantly lower than last year as it tries to change the division's cash flow profile.

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