Market Hits BT Hard

BT,
which has consistently outperformed the market for the
past three years, saw its share price plummet by 20 per cent
on Wednesday morning after announcing worse than expected
nine months results.


Although BT’s turnover rose from £13.3 billion
($21.5 billion) to £15.9 billion ($25.8 billion)
in the nine months to the end of December 1999, profits
before tax were down by a third to £2.3 billion
($3.7 billion).


However, what caught the market’s attention was the
mention of job losses in a new voluntary redundancy
scheme that will sweep away fully 10 per cent of
managers, around 3,000 people.


BT stated that the cost of persuading people to leave
the company would be £350 million ($567 million),
including incremental pension benefits.


Sir Iain Vallance, chairman of BT, tried to avoid the
market’s strong reaction by emphasizing that the
company’s growth prospects in the U.K. and abroad
remained good. He blamed competitive pressures in the
U.K. fixed voice telephony market for the drop in
profits.


“The results also reflect the costs of meeting increased
customer demand and of growing new areas of business,”
said Vallance, pointing to the launch of the
Concert global venture with AT&T in January, and
the acquisition of the whole of BT Cellnet last November.


Nonetheless, the steep drop in BT’s share price has
sent shockwaves through the industry. BT has become
one of the major players among the world’s Internet
businesses and a drop in capitalization of £16
billion ($26 billion), even if temporary, cannot
bolster confidence.


Despite the bad news for BT, there were many potential
profit centers within its results which showed positive
growth. Turnover in Yellow Pages and other directories
rose by 60 per cent on the quarter, BT Cellnet added
1.0 million customers, while BT’s share of its ventures’
turnover grew to £1.9 billion ($3 billion) in the
nine months.


The outlook for BT remains mixed, with profits sliding
in the fixed network call market in the U.K., but with
highly promising new ventures around the globe.


BT said it anticipated that Concert, with its IP
backbone network spanning 21 cities in 17 countries,
would generate turnover of more than $7 billion in its
first year.


By lunchtime Wednesday, BT shares were beginning to
recover slightly as investors considered the whole picture.

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