BT shares have taken a harsh hit this morning as the company announces ongoing issues with their Global Services unit. Shares in BT fell 15 per cent to 104.7p, causing BT’s market value to suffer a loss of £1.5 billion.
Between October and December of last year, BT’s Global Services unit was slapped with a £340 million charge due to financial reviews. Profits for the unit were said to be significantly lower than the equivalent period the year before. The third quarter to the last day of 2008 was expected to provide profits of around £17 million, however the same period of time a year earlier provided profits around £215 million.
The news follows an announcement by the company in November to cut the costs of its pension schemes and make 10,000 job cuts, 6 per cent of their overall workforce. The announcement of job cuts will affect thousands in Britain, pushing the record breaking unemployment records even further towards the 2 million mark. The Global Services arm of the company was said to be a means of growth for BT, however it is now proving to be a heavy weight pulling down the overall performance of the company significantly.
Ian Livingstone, the group chief executive, remains positive about the future of the company, stating, “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.”
“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,” continued Livingston.
However, BT is not blaming the issue on the current economic downturn, but rather more simply on operational failures. BT also claimed that they predict that the charges mentioned will be non-cash and the company’s final dividend would be promising. BT is also predicting that the revenues for the Global Service arm of the company will rise by 15 per cent in the third quarter of this financial year.
“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 Service’s operations which will help us drive our cost savings initiatives.”
The other units belonging to BT that are expected to exceed expectations are the retail section, wholesale section and the Openreach unit. These three units of the company are set to soar in the third quarter of this financial year. BT’s share prices have more than halved within the last year when shares were priced at 245p.