Jan 27, 2017
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Tough quarter and worse outlook for BT

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BT has reported revenue up 8% in its Global Services
division, which includes international wholesale and corporate
enterprise markets, but the underlying situation is down
In its latest quarterly results, revenue for the division went
up from £1.3 billion in the third quarter of 2015 to
£1.4 billion in the same quarter of 2016, but ebitda
dropped drastically from £131 million to only £40
million – largely because of its Italian financial
scandal, reported earlier this week.
But BT also reported: "Global Services’ underlying
revenue, excluding transit adjusted for the acquisition of EE,
was down 7% which includes a reduction following the
investigation into our Italian business, as well as challenging
international corporate markets."
Meanwhile the Moody’s credit rating agency, whose
ratings affect the interest rates companies pay, has changed
the outlook on BT from stable to negative, though it has not
changed BT’s credit rating from Baa1, its eighth
highest level.
"The reductions reflect the conclusion of the independent
review in the Italian business and pressures in UK public
sector and international services," said
BT CEO Gavin Patterson said: "The good progress
we’re making across most of the business has
unfortunately been overshadowed by the results of our
investigation into our Italian operations and our
He added: "We’ve undertaken extensive
investigations into our Italian business, including an
independent review by KPMG, and I am deeply disappointed with
the unacceptable practices by some that we’ve
found. This has no place at BT, and it undermines the good work
we’re doing elsewhere in the group. We are
committed to ensuring the highest standards across the whole of
Laura Pérez, vice president-senior analyst at
Moody’s, and lead analyst for BT, said: "Changing
BT’s outlook to negative reflects the
company’s weaker expectations for operating
performance over the medium term, which further weighs on
BT’s financial profile from an already stretched
level for the Baa1 rating, following the surge in the
company’s reported pension deficit in the first
half of 2016."
She added: "So far, we tolerated a higher pension deficit
because it was balanced against our expectation of
BT’s improving operating performance. However, the
profit warning will further delay the deleveraging that we had
anticipated in a context of relatively high leverage ratios for
the current Baa1 rating."
Within the UK market, BT reported that last-mile division Openreach had revenue
down 1%, "with the impact of regulatory price reductions
offsetting the continued growth in fibre". In addition
underlying revenue for Wholesale and Ventures – which
covers enterprise markets – "excluding transit
adjusted for the acquisition of EE was down 3%, as a result of
the continuing decline in partial private circuits and call
volumes", said BT.
Underlying revenue from business and the public sector was down
6%, "due to the decline in UK public sector revenue", said the

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