BT Global Services, a unit of BT focused on the international business market, showed a moderate performance in its first quarter. Revenues fell 5.3 percent to GBP 1.91 billion, and operating cash flow was a negative GBP 60 million. At the same time, costs were down 6.1 percent, EBITDA improved 6.2 percent to GBP 138 million, and the order book was not bad, up 2.1 percent. Its EBITDA margin was 7.2 percent, and the operating result improved sharply to a loss of GBP 37 million. Free cash flow (EBITDA minus capex) was still slightly positive. The operator invested more in capex, up 14 percent. The outlook for fiscal 2012 was maintained, for an operating cash flow of GBP 200 million. See table.
|
GBP mln |
Q1 2011 |
Q1 2012 |
% y-o-y |
|
Revenue |
2011 |
1905 |
-5,3 |
|
Operating costs |
1881 |
1767 |
-6,1 |
|
EBITDA |
130 |
138 |
+6,2 |
|
EBITDA margin |
6,5% |
7,2% |
|
|
Operating profit |
-54 |
-37 |
|
|
Order intake |
1552 |
1584 |
+2,1 |
|
Capex |
103 |
117 |
+13,6 |
|
Capex/revenue |
5,1% |
6,1% |
|
|
Operating cash flow |
-38 |
-60 |
|
|
Free cash flow (EBITDA - capex) |
27 |
21 |
To start with BT did well to limit the impact on EBITDA from the sharp fall in sales. However cash flow did suffer from the increase in capex. Infrastructure investments across the sector, from cable and copper to FTTH and mobile, are increasing due to the explosive growth in data traffic. Still, capex is at a low level of 6.1 percent of sales, less than half what it was three years ago. This shows that only by cutting on capex can BTGS prevent cash burn from further spiraling.
The fall in revenue is largely due to lower transit income (down 36%), which is related to international backbone traffic. Excluding this, sales were down just 2.3 percent. This puts results roughly in line with those from Orange Business Services. The UK activities accounted for much of the remaining drop at BT Global (lines down 7.3%, calls down 18%). ICT, managed and MPLS services for multinationals, by far its biggest activity, declined 3.2 percent to GBP 1.26 billion. Elsewhere various international and wholesale services had positive revenue growth.
Conclusion: BT Global Services is more resistant to difficult market conditions than a couple years ago, when it issued a profit warning in October 2008. While it once expected to maintain the EBITDA margin at 7-8 percent, by fiscal Q3 2009 the result was almost completely decimated. However, at the current level of 7.2 percent, the past ambition to reach 15 percent is still far away. The company also runs the risk of investing too little, given its low level of capex. This could put future growth in danger. In short, BT's health is restored, but it's still far from its former self.
