For the fourth quarter, the London, UK-based carrier posted net income of 391m pounds ($739.5m), down from 440m pounds ($832m). Revenue for the quarter rose 7% to 5.13bn pounds ($9.71bn) from 4.82bn pounds ($9.12bn) in the year-ago period. Analysts had expected net income of 414m pounds ($783m) on sales of 5.11bn pounds in the quarter ($9.66bn).
For the full year ending March 31, BT posted a profit of 1.55bn pounds ($2.93bn), compared to 1.83bn pounds ($3.46bn) in 2005. Sales rose 6% to 19.51bn pounds ($36.93bn), from 18.43bn pounds ($34.88bn) the previous year.
The results showed that BT’s fixed-line revenues declined by 3%, in common with nearly all telecoms carriers around the world. However, BT is without a mobile operation after the spin-off of BT Cellnet (later known as O2 Plc) in November 2001. Yet in the space of four years, the UK company has transformed itself into one of the most dynamic fixed-line carriers in the world.
Part of this transformation has been down to BT’s creation of a new wave (broadband, IT services, and mobility) revenue stream, which for the last couple of years has provided the vast majority of BT’s growth. During the fourth quarter, new wave revenue rose 28% to 1.85bn pounds ($3.5bn), while full-year new wave revenue rose 38% to 6.28bn pounds ($11.87bn), which represents 32% of BT’s total sales for the past 12 months. Excluding the acquisitions of Albacom and Infonet Services Corp, the organic growth in new wave revenue was 23%.
This quarter’s results are a terrific set of numbers. They show BT firing on all cylinders, with EBITDA, revenue, and earnings per share all growing, said chief executive Ben Verwaayen. These results provide further evidence that our strategy of embracing change is working.
BT has been relying on broadband in particular in recent years to make up for the lack of a mobile operation. During the quarter it added 800,000 new customers, giving BT Retail a 31% market share. In total, BT had 7.9 million broadband customers at the end of March, up 58% from the previous year. Since then, it has broken through the 8 million barrier.
However, it is coming under increasing pressure from rivals such as NTL Inc, Cable & Wireless Plc, and the Carphone Warehouse, and it is certain to come under renewed pressure during the next 12 months.
Another key element of BT’s new wave revenue comes from its services arm, BT Global Services. Sales here rose from 7.49bn pounds ($14.1bn) in 2005, to 8.63bn pounds ($16.3bn) in 2006, as BT continues to win large network management deals. During the fourth quarter alone it won 1.1bn pounds ($2.08bn) worth of networked IT services contracts, bringing the value of total orders achieved during the last 12 months to 5.4bn pounds ($10.21bn).
A smaller but increasingly important part of new wave is the mobility section, where sales rose 18% to 39m pounds ($73.6m). Last June, the carrier launched BT Fusion, a mobile phone that automatically routes calls to a BT broadband line when the customer is in the home zone (either a home or office), and then piggybacks on the mobile network of Vodafone Group Plc when outside this area. The service has attracted more than 30,000 connections since its launch.
BT’s intension to roll out wireless networks across 12 of the major UK cities will further increase the attraction of this mobility device. BT Openzone already has 8,400 hotspots in the UK and Ireland, and more than 30,000 globally.
Another of BT’s efforts to drive the introduction of converged services will be the BT Hub, which will enable wireless networking for all PCs and laptops in the home, as well as offering VoIP services, video telephony, high-definition voice, monitoring services, and remote diagnostics capabilities.
Separately, BT unveiled a deal with the film studio DreamWorks, giving subscribers to BT’s forthcoming Vision (video-on-demand) service access to the film studio’s back catalogue including the Shrek movies, and Wallace and Gromit. BT Vision is scheduled for an autumn launch.
There has been some concern recently over BT’s mammoth 34bn pounds ($59.6bn) pension liability. BT said this has fallen 50% to 1.8bn pounds ($3.4bn) over the course of the year, aided by buoyant global equity markets. BT maintains that a government guarantee dating back to its privatization in 1984 should cover roughly 28bn pounds ($52.9bn) of its pension fund liabilities, or three-quarters of its total obligation to employees, in the event of the group going bust.
This pension liability was highlighted in March when a number of global equity firms were said to be looking to launch a potential 20bn pound ($35.1bn) takeover bid for the former UK incumbent. But BT has refused to let this distract it and is continuing with its plans to spend 10bn pounds ($18.9bn) through to 2009 on its 21CN project.
BT first announced plans in June 2004 to move its entire customer base on to an IP-based network. The move was the first time that a major carrier had agreed to totally abandon a traditional public switched telephone network in favor of an IP-based network.
Contracts have been signed with eight preferred suppliers and the first equipment orders for 21CN have been placed. BT said the trials of telephone services over 21CN are scheduled to begin this month, while its first live 21CN operation will be in November 2006 in Cardiff.
An advantage that BT has over its European rivals such as France Telecom SA and Deutsche Telekom AG is its low debt burden, which is sitting at 7.534bn pounds ($14.23bn), down from 8.1bn pounds ($15bn) at the end of December.
Looking forward, BT said it remains confident it will continue to grow revenue, EBITDA, earnings per share, and dividends, over the coming year. It said revenue growth will continue to be fueled by new wave services.
BT said the full-year dividend would be 11.9 pence ($0.22) per share, up 14% from the previous year. The full-year dividend accounted for some 61% of earnings, and BT said it is on track to raise the ratio of profits to payouts to two-thirds by the financial year to the end of March 2008.
Shares in the carrier rose 6.69% to 223.25 pence ($4.22) on the London Stock Exchange following the news.
