Britain's BT Group just missed estimates for first-quarter core earnings today and worried investors with key indicators such as its free cash outflow and margins, hammering its shares.
The group reiterated its full-year outlook and revenue was ahead of forecasts, but the market focused on the negative comments, with analysts citing the Wholesale division, Global Services margin, pension deficit and free cash outflow as cause for concern.
The group reported underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of £1.43 billion for the three months to end June, compared to analysts' forecasts of £1.45 billion.
Its Global Services division, which provides outsourced IT, telephone and network services, had an EBITDA margin of 9.5 per cent, a key figure to which analysts look for signs of whether it is meeting its medium-term target of 15 per cent.
Its free cash outflow also caused concern, hitting £734 million, almost £400 million off analysts' forecasts of £337 million.
The wholesale unit, which sells network access to other providers, also continued to suffer due to strong broadband competition and its revenue was down 12 per cent, with EBITDA before staff leaving costs down by 14 per cent.
"Improvement in Wholesale appears to have been pushed out further with year-on-year declines still strong," said Daiwa in a note.
"This is an unsettling development and we will be looking forward to management's explanation." The group's staff pension scheme also slipped into a deficit.
Britain's dominant fixed-line telecoms provider said overall revenue rose 3 per cent to £5.18 billion, ahead of forecasts, at £5.07 billion, according to Reuters Estimates.
New chief executive Ian Livingston, delivering his first set of results, said the Global Services margin had been under pressure and said this could fall slightly in 2008/09 in part due to currency movements.
But he reiterated the 15 per cent margin target and the overall full-year outlook.
"Our full-year guidance remains unchanged. We continue to expect to deliver growth in revenue, EBITDA, earnings per share and dividends per share in this financial year," Mr Livingston said in a statement.
The BT Retail unit had revenue growth of 3 per cent and a share of net broadband additions of 31 per cent during the quarter.