Cost cuts help BT to raise guidance

LONDON, UK: Britain's BT Group increased its revenue and dividend forecast for the full year on Thursday after stringent cost cuts helped the former telecoms monopoly to beat second quarter core earnings expectations.

BT, which is in the process of restructuring following two profit warnings last year, said on Thursday underlying costs were down 932 million pounds ($1.55 billion) in the first half.

That early progress means it now expects to take out at least 1.5 billion pounds of costs in the full year, and full-year revenue to be down between 3 to 4 per cent, compared with an earlier forecast of a 4-5 per cent drop.

Free cash flow targets have also been hiked, with the group now forecasting at least 1.6 billion pounds, compared with the earlier forecast of over 1 billion pounds, allowing it to forecast a full-year dividend up around 5 per cent on last year.

"We have had another quarter of progress but there remains a lot more to do," Chief Executive Ian Livingston said.

BT was forced to restructure at the end of the last financial year after reviewing the Global Services division, a supplier of IT services to multinational companies which had for years been touted as the growth engine.

It announced new spending and cost saving targets in May after two earlier profit warnings at the division prompted a massive writedown, a cut to the dividend and 15,000 job cuts.

"We have been very strong believers in the ability of current management to strip out costs from the business and they're delivering well ahead of market expectations," Daiwa analyst Michael Kovacocy told Reuters.

The restated outlook and dividend follows a strong performance in the second quarter.

The key figure of earnings before interest, tax, depreciation and amortisation (EBITDA) was up 2 per cent to 1.44 billion pounds, compared with a Reuters poll forecasting 1.37 billion pounds, after cost cuts offset a weaker top line.

The company said it had seen improvements across all its line of businesses but BT Retail looked to have operated strongly, growing core earnings at the division by 11 per cent despite a 5 per cent drop in revenues.

The group cut costs at Global Services by 8 per cent, with the work force reduced by 1,600 in the quarter. Earnings from the division were down 10 per cent on the year to 95 million pounds, but up from 62 million pounds in the first quarter.

Telecoms firms have been hit hard by the downturn, with less consumer and business spending and less business travel hitting revenues but analysts believe BT is now on track for a steady improvement after last year's problems.

Its IAS 19 net pension position at the end of September was a deficit of 6.8 billion pounds net of tax, compared to a net deficit of 2.9 billion at the end of March.