BT warns of further financial problems at Global Services arm

A £336m hit in the third quarter is likely to be followed by another substantial one-off charge due to contract problems at IT services division

BT grew revenue but profit fell

BT has warned of “further substantial one-off charges” because of the ongoing problems in its Global Services (BTGS) division.

The company’s third-quarter results, released today, confirmed a £336m hit as a result of the financial and contract reviews put in place at BTGS, which followed a profit warning and the resignation of the IT services arm’s chief executive last year.

But that is unlikely to be the end of the troubles at BTGS with more charges expected during the fourth quarter.

The firm pointed to “ongoing commercial discussions in respect of two of our largest contracts” – one of which is believed to be the high-profile deals for the NHS National Programme for IT (NPfIT) which have hit major difficulties.

“These [discussions] may result in further substantial one-off charges in the current financial year, the need for and size of which will be highly dependent on the outcome of the ongoing discussions,” said BT in a statement.

NPfIT contracts are structured on the basis that suppliers receive payment on delivery of systems. BT has experienced major delays in the implementation of the NHS summary care records application which is likely to have meant the firm investing substantial resources without receiving the money that would have been paid if the project was meeting its original deadlines.

"We are working closely with Connecting for Health on the delivery of our contracts," said a BT spokesman.

But the problems at BTGS are not limited to the NHS.

“The operational review we are conducting may also result in additional substantial one-off charges in respect of the re-organisation of the division, rationalisation of networks and other measures to reduce the future cost base of BT Global Services,” said the BT statement.

Other large customers at BTGS include Fiat, InBev, Proctor and Gamble and Thomson Reuters.

Across the group, the hit taken by BTGS meant that a five per cent increase in BT’s third-quarter revenue to £5.4bn was turned into a 32 per cent drop in earnings before income tax, depreciation and amortisation (EBITDA) to £1bn, and an 81 per cent fall in pre-tax profit to £113m.

“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. However, as previously announced, the group results have been severely impacted by the performance of our Global Services division,” said BT chief executive Ian Livingston.

“"We need to build a solid base in Global Services from which we can deliver positive cash flows. We have already announced changes in management and are making significant financial and operational changes to the business. We are also trying to change the division's cash flow profile to ensure it’s less concentrated towards the fourth quarter and, as a result, fourth quarter cash inflow in Global Services will be significantly lower than last year's exceptionally high figure.”