BT has posted an annual loss of £134m due in large part to the 'unacceptable performance of BT Global Services'. BT stated that the rest of the group 'performed well' with EBITDA growth in both BT Retail and Openreach, while in BT Wholesale the rate of year on year EBITDA decline continued to slow. The telco is poised to axe 15,000 more jobs next year.
The Communication Workers Union said that the new announcement of job losses will be 'challenging for all at BT' but that a voluntary approach to redundancies must be retained.
Andy Kerr, CWU deputy general secretary, said: "15,000 is a very challenging level of job losses, especially on the back of last year's reductions. "We expect the majority of job losses to be third party - contractors and agency staff - as they were last year with many jobs being lost outside of the UK. However this is a serious day for staff at BT.
"There was a damaging mis-management of Global Services by senior managers, which has been the main cause of these poor results. These managers have been removed and we're hopeful that this difficult time is now behind the company. We're working closely with the company to ensure any losses are voluntary and we're looking at new ways of finding new work and retaining permanent employees, including secondment agreements."
BT reported that during Q4 to March 31st revenue of £5,473m was 1% higher in the quarter, benefiting from favourable foreign exchange movements of £257m and the impact of acquisitions of £100m. Excluding the impact of these and the effect of the contract and financial review adjustments of £41m, underlying revenue decreased by 5%. EBITDA before contract and financial review charges decreased by 14% to £1,354m due to the 'unacceptable performance of BT Global Services'.
BT revealed that last year's cost savings initiatives included a reduction the number of full time employees by around 5,000. In addition to this, the number of indirect employees working through agencies or third party contractors was reduced by around 10,000, giving a reduction in its total labour resource of some 15,000 in the year. BT expects further reductions of a similar level next year.BT's statement said, 'We have sought to retain our permanent workforce through redeployment and re-training'.
Ian Livingston, Chief Executive, commented: "Three out of four of BT's lines of business have performed well in spite of fierce competition and the global economic downturn. However this achievement has been overshadowed by the unacceptable performance of BT Global Services and the resulting charges we have taken. During the year we have changed the leadership of BT Global Services and started to turn the division around.
"With a recovery programme for BT Global Services in place and our heightened focus on costs and customer service, we now want to accelerate our plans for our future networks. We will examine doubling the pace of the roll out of super fast broadband next year within existing capital expenditure plans, bringing fibre based services within the reach of more than a million homes and businesses and securing the jobs of a thousand BT people.
"In the coming year we will extend the record of operational delivery already demonstrated in three out of our four divisions right across the group. We expect to deliver a net reduction in operating costs and capital expenditure of well over £1 billion in 2009/10. This will enable us to generate free cash flow, before any pension deficit payments, in excess of £1 billion in 2009/10 and beyond. I believe BT will emerge from the recession a stronger company to the benefit of our customers and shareholders."
Due to the impact of contract and financial review charges of £1.3bn, foreign exchange movements of £287m and acquisitions of £96m, total group operating costs increased to £6,359m. Underlying operating costs before leaver costs and contract and financial review charges have reduced by 2%. A significant element of the reduction arose in staff costs before leaver costs which decreased by 5% to £1,293m with the impact of headcount reductions more than offsetting the impact of recent acquisitions and pay inflation.
Group operating costs before depreciation and amortisation and leaver costs, excluding BT Global Services, decreased by 9% to £1,865m, or 12% on an underlying basis excluding foreign exchange movements of £33m and acquisitions of £30m. The reduction reflects the successful delivery of our cost savings initiatives in these lines of business. Leaver costs were £62m (Q4 2007/08: £56m).
As a result of this operational review the group has recorded specific item restructuring charges of £280m in the quarter, with further charges of approximately £420m in total expected over the next two financial years, the majority in 2009/10. These charges predominately arise from legacy networks and products rationalisation and restructuring costs associated with people and property. These charges are expected to result in a net cash outflow of about £260m in 2009/10 and £50m in 2010/11.
Sir Mike Rake, Chairman, added: "This has been a challenging year in which BT has had to tackle some significant issues. I am confident that decisive action by management has addressed the underlying problems within BT Global Services and has laid the foundation for the group to deliver a significant improvement in performance in 2009/10 and the years to come. We have agreed with the trustees of the BT Pension Scheme the pension contributions for the next three years enabling the Board to announce a sustainable dividend policy.
"The proposed final dividend of 1.1p gives a full year dividend of 6.5p which rebases dividend payments to a level which we are confident is sustainable. The Board is committed to delivering attractive returns for shareholders and believes that the operational improvements in the business will generate sufficient cash flow to allow the dividend to grow at the same time as investing in the business, reducing debt and supporting the pension scheme."
BT expects revenue to decline by 4% to 5% in 2009/10, reflecting a continuation of the trends seen in the fourth quarter, the impact of lower mobile termination rates, together with the impact of refocusing BT Global Services.
BT expects to deliver a net reduction in capital expenditure and operating costs of well over £1bn in 2009/10. Included within this is a reduction in group capital expenditure to around £2.7bn. As a result, BT expects group free cash flow, before any pension deficit payments, but after the cash costs of the BT Global Services restructuring charges, to reach over £1bn in 2009/10 and beyond.
Earnings per share will be impacted by the movement of the net finance expense on the pension obligations which moves from a credit of £313m in 2008/09 to a charge of about £275m in 2009/10.