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BT soars as revenue falls
By Patrick Smith | Fri, 01/02/2013 - 10:32
Shares in the telecoms firm gained 4% on Friday morning as the company announced its results for the three months to 31 December, revealing a 7% increase in pre-tax profit to £675 million. This was despite a 6% decline in revenue, meaning the group brought in £4.5 billion, in line with expectations and on track for full-year targets.
Tight cost controls and strong demand for broadband were the driving factor behind the profit growth, which offset the pressures of regulation.
The group boasted 122,000 new broadband customers after it employed more engineers to fix faults on the network and connect more customers following some of the wettest months on record. BT overtook Virgin Media as the biggest fibre-optic broadband network in Britain, providing the technology to 13 million homes, with more than a million of its customers now using the faster, more expensive product.
"We have made progress in a number of areas and delivered solid financial results. These are in line with our expectations for the year, which remain unchanged," commented chief executive Ian Livingston.
Interactive Investor view
While these latest results hardly warrant fireworks, they provide further evidence that BT's strategy is working. Rather than relying on endless increases in revenue which all the large telecoms companies seem to have accepted as unrealistic BT has secured its position and brought costs firmly under control.
BT has been a turnaround situation, with management successfully so far turning around free cash flow in its global services division and defending its traditional revenues against tough competition.
Global services did well during the quarter, securing £1.9 billion of new orders, up 17% on a year before.
BT outbid rivals British Sky Broadcasting (BSY) and Walt Disney's (DIS) ESPN last September for the rights to show the top English rugby after it paid £152 million to the Aviva Premiership to show 69 matches over four years. This was on top of a surprise win of broadcasting rights for Premier League football, which will see BT begin to show games from the 2013/2014 season.
But on Tuesday Bank of America downgraded the stock to 'hold', commenting: "The company has aggressively reduced headcount, however cost cutting will become harder to achieve.
"With revenues not reaching an inflection point yet, management may now prioritise projects to accelerate revenue growth, potentially putting pressure on free cash flow generation."