Cost transformation strengthens BT’s bottom line

12 Nov 2009

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BT has reported a 21pc increase in EBITDA for its all-island operations for the half year ended 30 September. The BT Group has free cash flow of stG£705 million, up stg£336 million which it attributed to cost-transformation efforts.

While underlying revenues, excluding foreign-exchange movement, declined by 3pc to £397.8 million against the same period in the prior year, BT said it saw an improved revenue trend in the second quarter. Gross margin improved by 7pc.

In July, BT struck a deal with Vodafone, whereby the mobile operator would sell broadband and voice services on BT’s unbundled local loop network of 22 exchanges. Under a joint initiative, BT will build the network out to 60 exchanges nationwide for Vodafone by 2011.

Lower costs, higher efficiencies

The strategic move is allowing BT to concentrate on wholesale market opportunities and the increasing use of ICT in organisations to help drive down costs and boost efficiencies.

In the half year, BT built on its ambition to be the leading networked IT services provider in the Republic of Ireland by focusing on the government and business market, as well as its wholesaling managed network services to other communications companies.

The company has the largest fibre-optic network in Ireland which BT CEO Chris Clark said is allowing the company to feed demand for managed services, network operational efficiency, unified communications, virtualisation and hosted contact-centre solutions in particular increased as organisations turned to ICT to reduce costs, streamline their businesses and improve productivity.

Over the course of the six months, BT signed a number of significant contracts with business and government organisations, including Allianz, Allied World Assurance, Bank of Scotland Ireland, Cryptologic, Chartered Accountants Ireland, Delta Index, Glanbia, ServiceSource, Trinity Biotech, Medical Council of Ireland, VHI Healthcare and a number of companies in the DCC plc Group.

Managed network solutions demand

BT’s wholesale division performed well in the half year due to significant demand for managed network solutions. The company now designs, builds and manages networks for 3 Ireland, Telefonica O2 Ireland, and most recently Vodafone Ireland. The company also secured contracts with Strencom, UTV and Coillte, which has outsourced the roll out of wireless infrastructure to BT.

For example, BT in the last five years deployed 3 Ireland’s 3G network of more than 900 sites as well as 110 new sites under the National Broadband Scheme. “This was the fastest mobile rollout in Western Europe,” said Clark.

Clark said that 40pc of BT’s revenues now come from outside the UK, and in terms of R&D, the company is in the top R&D spenders in Europe.

He said the company has navigated the recession quite well, particularly in terms of overriding market trends of reducing spending, renegotiating contracts and having to transform cost bases.

“The good news is that ICT has moved into the network and more and more companies are looking at end-to-end solutions. They are concentrating on network optimisation, IT optimisation and new outsourcing trends, such as home sourcing.”

Cost-transformation programme

Clark said that BT’s all-island financial position was achieved through a strong cost-transformation programme. “Our headcount has stayed flat in the last two years. We recently were contracted to manage O2’s IT function which resulted in 68 O2 employees moving across to BT. Also, our deal with Vodafone resulted in 50 people moving to that company.

“Overall, 20pc of our costs have been reduced through using our own technology, cutting down on travel and expenditure. This has been made possible through our use of video and audio conferencing, for example. Overall, our cost transformation has been achieved by supplier management, inventory management, marketing optimisation and the use of home shoring, where we kitted out workers with unified communications and broadband,” Clark said.

By John Kennedy

Photo: Seamus Walsh, managing director, Wholesale (left to right); Colm O’Neill, managing director, BT Business; and Chris Clark, CEO of BT.

 

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Editor John Kennedy is an award-winning technology journalist.

editorial@siliconrepublic.com