Global Services chief Luis Alvarez replaced by Americas boss Bas Burger.
BT on Thursday cut CEO Gavin Patterson’s annual pay packet, announced 4,000 redundancies, and lowered its financial outlook, as it grapples with the Italian accounting scandal, and weakness in the domestic public sector and international corporate markets.
Patterson will receive £1.3 million (€1.54 million) for the year to 31 March, down from £5.3 million in the previous year. Outgoing finance chief Tony Chanmugam has had his annual pay cut to £258,000 from £2.81 million.
BT also announced that Luis Alvarez, CEO of its troubled Global Services unit, will leave the company; he will be replaced by BT Americas president Bas Burger.
"This has been a challenging year for BT. We’ve faced headwinds in the U.K. public sector and international corporate markets and must learn from what we found in our Italian business. Openreach also received a fine from Ofcom after an investigation into historical Deemed Consent practices revealed it fell short of the high standards we expect," said Patterson, in a statement accompanying BT’s fourth quarter and full year financial results.
"We take these issues extremely seriously and are putting in place new measures, controls and people to prevent them happening again. Learning from the challenges of this year will make BT a stronger company for the future," he said.
BT said it will restructure Global Services, Group Functions, and Technology, Services and Operations (TSO), a plan that will result in 4,000 redundancies over two years, savings of £300 million, and restructuring charges totalling £300 million.
Global Services, which has struggled amid lower corporate spending, particularly in the Americas, will undergo sweeping changes, switching its focus to delivering services primarily via the cloud rather than over its own infrastructure.
"Technology trends mean that we are now less dependent on owning physical local network assets around the world, creating opportunities to reposition Global Services as a more focused digital business," Patterson said.
The restructuring will take place under the leadership of a new Global Services CEO in Bas Burger. Burger has served various roles at BT over the last nine years, and most recently held the position of president of its Americas operation, which spans the U.S., Canada and Latin America.
"Global Services has developed world-leading products and services. This, combined with our strong relationships with our customers, puts us in a strong position to enable the digital transformation of their businesses," Burger said. "I look forward to continuing to build this position, deliver on our strategy and drive growth in Global Services’ strategic portfolio of networking, cloud-based unified collaboration, hybrid cloud services and security."
Burger will assume his new role on 1 June, taking over from Luis Alvarez, who is leaving BT after 18 years.
"I would like to thank Luis for the contributions he made to the company since he joined 18 years ago," Patterson said. "He has helped to transform the Global Services business during this time, delivering very high levels of support for our customers, while evolving our products and services to seize upon technology changes and new opportunities."
Global Services’ travails led BT on Thursday to cut its financial outlook. The company expects normalised free cash flow of £2.7 billion-£2.9 billion for fiscal 2017/18, lower than its previous guidance of £3.0 billion-£3.2 billion.
Its guidance of broadly flat underlying revenue and adjusted EBITDA remains unchanged. In 2016/17, underlying revenue and adjusted EBITDA came in at £24.06 billion and £7.65 billion respectively.
The announcements came on the same day that BT published fiscal fourth quarter and full year financial results.
"We’ve made progress in a number of areas," Patterson said. "Our integration of EE is going well, our U.K. consumer, SME and corporate businesses are performing strongly, and we’ve made significant progress in improving customer experience across the group."
Group revenue in the three months to 31 March came in at £6.12 billion, up 10% year-on-year on a reported basis, but down by 0.9% excluding transit and adjusted for the acquisition of mobile operator EE.
Adjusted EBITDA was up 2% to £2.07 billion, again, driven by EE. Adjusted for EE, underlying EBITDA fell 4.6%, due to the continued decline in U.K. public sector spending, and investments in improving the customer experience.
Consumer revenue grew 4% to £1.25 billion, as BT added 29,000 retail broadband customers. Fibre net additions came in at 211,000, taking its total customer base to 4.9 million. Its TV base increased by 11,000 to 1.7 million.
BT’s EE unit generated revenue of £1.26 billion, and added 192,000 postpaid customers, taking its total to postpaid base to 16.9 million. However, its prepaid base fell by 388,000 to 6.9 million.
Business and Public Sector revenue was down slightly to £1.22 billion from £1.24 billion a year earlier, reflecting the ongoing decline in public sector spending.
Quarterly revenue at Global Services grew 4% year-on-year to £1.42 billion, thanks to foreign exchange gains. Order intake shrank 28% to £900 million, due to the challenges faced by BT in the international corporate markets.
Meanwhile, revenue was broadly flat at Openreach, and Wholesale and Ventures, coming in at £1.29 billion and £541 million respectively.
For the 12 months to 31 March, BT’s revenue surged 27% on last year to £24.06 billion, thanks to the contribution from EE and foreign exchange gains. Underlying revenue adjusted for the EE acquisition was down 0.2%, in line with BT’s guidance.
Adjusted EBITDA was up 18% to £7.65 billion. Underlying EBITDA adjusted for the EE acquisition was down 2.9%, driven by the weakness in U.K. public sector spending and BT’s investment in improving customer experience.