UPDATE 2-Broadband and cost control help BT beat forecasts

Fri Feb 1, 2013 5:10am EST

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* Beats forecasts for Q3 profit before tax

* Cost cuts offset weaker revenue

* Shares up 4.6 percent

By Kate Holton

LONDON, Feb 1 (Reuters) - Strong demand for broadband and tight cost control helped Britain's BT offset the combined pressures of regulation and recession to post a better-than-expected 7 percent rise in third-quarter pre-tax profit.

In a continuation of the strategy that has sent shares in the group to a near five-year high, BT said it had recorded profits in the three months to Dec. 31 comfortably ahead of forecasts, off revenues that were down by 6 percent.

The news sent shares in the group up 4.6 percent, topping the FTSE 100 leader board and giving the group a market value of 20.5 billion pounds.

The group was boosted by demand for broadband, both at the retail level directly to customers and in wholesaling the service to rivals, as an increase in the number of engineers it employs helped the group to rebound from the previous quarter which was hit by rain.

The group said it had now become the biggest fibre broadband network in Britain, overtaking Virgin Media, after it passed 13 million homes with the technology.

More than a million of its customers are now using fibre and the group hopes that the imminent launch of its BT Vision sports channels with Premier League soccer and rugby will encourage others to upgrade to the faster and more expensive product.

"More than 13 million premises can access our fibre broadband and we are passing around 100,000 additional premises every week," Chief Executive Ian Livingston said.

"Take-up is growing strongly ... (and) this gives us an excellent platform for our push into TV and sport later this year."

The tight focus on costs and underlying improvement in trading has helped BT regain investor confidence in recent years.

Total operating costs were down by more than 1 billion pounds in the last nine months alone, as the group improved terms with suppliers, used fewer contractors and third-party sources and benefited from improvements to the network.

That helped lift third quarter adjusted profits by 7 percent to 675 million pounds ($1.07 billion), some 7 percent ahead of consensus at 632 million pounds.

Group revenues, hit by regulation and economic pressures in Britain and Europe where it serves multinational corporations, were down 6 percent.

"As one of the few European incumbents increasing EBITDA, BT remains an attractive name in the sector," Berenberg analyst Stuart Gordon said. "The momentum looks set to continue with the cost-cutting efforts still bearing fruit.

"We expect modest upgrades to current consensus expectations for the current financial year driven by the acceleration in fibre and signs that Global Services is beginning to improve."

BT Global Services, the group's large division which deals with multinational corporations, also looked to be performing strongly with 1.9 billion pounds worth of new orders. Chief Executive Livingston said the unit was now more efficient but still had further room to improve.

"We have made progress in a number of areas and delivered solid financial results," he said. "These are in line with our expectations for the year, which remain unchanged."

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