BT Global Services recovery: the deals that made it work

BT’s Global Services division has had a troubled recent history. The consequences of poor contract negotiation and weak cost control at the turn of the millennium kicked in by 2009 when the division reported losses of £2.1bn against revenues of £8.8bn.

As a result a wounded BT had to write down $1.6bn and implement an extended cost- and staff-cutting programme.

Current CEO Jeff Kelly joined in early 2010 and said the key objectives of his tenure were to get the cash flow positive and then return the division to growth by 2012 or 2013. He appears to be on target.

It’s a tough job to take on. The company’s involvement with projects like the NHS National Programme for IT carries a big financial legacy.

One consequence of being locked into such mega deals is to make the division’s slow and painful recovery subject to significant quarter-on-quarter fluctuations.

In this year’s second quarter results, for example, the absence of a single £640m contract extension with the Ministry of Defence seen in the same quarter in 2010 made the order book look significantly depleted.

Substantial restructuring and Kelly’s clear focus on the core network-centric services, have also meant that various disposals are still visible on the books.

But looking beyond these one-off costs, it appears that both revenues and operating costs are staying fairly flat while earnings creep up. In Q2, for example, overall revenue was up just a single percentage point, but earnings were up 15 per cent.

Kelly admits that BT’s big UK legacy customer base will always mean that a part of his revenue base will be under pressure as these customers seek to streamline and reduce their costs. Consequently, his focus on new, high-growth markets looks entirely appropriate.

Already announced are a contract with CLSA Asia Pacific Markets to provide voice, data and trading systems solutions across 14 countries; an expanded relationship with Novartis adding new services and connecting new global locations; and a major networked IT services contract in Australia’s health sector in partnership with Serco.

And in BT’s most recent financial report, issued on November 3, there is a Latin American rhythm to Global Services’ growth plans.

“We recently announced a series of investments aimed at doubling our business in key Latin American countries. By recruiting 250 new staff, increasing our professional services capabilities, opening new centres of excellence and implementing a wide range of network and customer service improvements, we aim to better support global customers investing in this region and help large Latin American companies expand globally,” says the report.

There was speculation a year ago that BT Global Services might simply be reconfiguring itself for a quick sale.

Given the current state of world economies and the continued slow crawl out of the swamp the division is having to perform, this doesn’t look a realistic proposition.

Sometimes the smallest signs can give the sense that things are on the turn. BT Global Services’ recent Wordcomm award as ‘Best Global Operator’, may not count for much against the next quarter’s figures, but it at least points to an organisation that is heading towards the light.