* Q2 headline revenue down 9 pct to 4.47 bln stg
* Q2 pretax rose 7 pct to 608 mln stg
* Cuts full-year underlying revenue forecast but maintains
* Shares up 6 pct
By Paul Sandle
LONDON, Nov 1 BT had to rely on deep cost
cuts to maintain its full-year earnings outlook on Thursday
after an adverse regulatory ruling and weak European corporate
demand sent revenues down 9 percent in the second quarter.
The top line result was even worse than the 7 percent drop
the market was expecting, but investors were impressed by BT's
ability to deliver efficiency savings and the shares rose 6
percent in early trade.
Chief Executive Ian Livingston said it was a solid quarter
given the continued tough conditions for the company's corporate
"Whilst it's a difficult environment in terms of recession
and in terms of regulatory impacts, we still delivered profit
growth," he said on Thursday.
Britain's biggest fixed-line telecoms company posted
headline revenue of 4.47 billion pounds ($7.2 billion), 100
million pounds short of market forecasts. But pretax profit rose
by a better-than-expected 7 percent to 608 million pounds.
BT's revenues were hit by a triple whammy of recession,
regulation and rain.
Half of the group's turnover is dependent on corporate
spending, across both its Global Services division, which serves
multinationals around the world, and its business with small-
and medium-sized companies.
Livingston said the economy, in continental Europe in
particular, had stayed weak for longer than he had expected.
"Continental Europe, particularly Mediterranean countries,
is difficult. We've seen double-digit declines there," he said.
He added that conditions in the banking sector were also tough.
"(But) we have seen some encouraging signs, both in
significant costs reductions and in the order book," he said.
A judgment in UK courts on charges for terminating some
mobile phone premium calls also went against the company, which
impacted revenue by 40 million pounds year-on-year in the
And rain increased the number of repairs needed on phone
networks, resulting in a backlog of new installations, the
The combination meant BT had to abandon its hope that
underlying revenue excluding transit would show an improving
trend on the minus 1.9 percent seen last year for the full year,
but said the second half would still see an improvement.
The group was able to grow profit by cutting its underlying
costs by 10 percent, the best performance in terms of efficiency
in recent quarters.
It also maintained its full-year forecasts, to grow adjusted
core earnings and to deliver free cash flow in line with last
year, and lifted its interim dividend by 15 percent.
Shares in the company, which have declined by more than 8
percent in the last month, were 6.7 percent higher at 226.8
pence at 1130 GMT, the top riser in the FTSE 100 index.
Hargreaves Lansdown analyst Keith Bowman said BT continued
to act as something of a corporate bellwether, with global
economic uncertainties affecting company confidence.
"Nonetheless, management continues to attack costs, a key
driver for current earnings progress, whilst the group's cash
generative nature underwrites increasing shareholder returns,"
"In all, the group's perceived status as an 'Internet
utility' continues to appeal in uncertain times."
Edwin Lloyd at Edison Investment Management said BT was
continuing to roll out its fibre network while also managing to
make cost savings.
"BT can't continue its cost cutting to offset declining
revenues as it has done in these results but when the economy
turns it will have a strong platform in contrast with many of
its European neighbours," he said.
BT's retail division, which supplies telephony, broadband
and television in Britain in competition with Virgin Media
, BSkyB and Talktalk, added 81,000
broadband customers in the quarter, representing nearly half of
the growth in the market.
Livingston said the group was accelerating its superfast
broadband fibre roll-out, making the lines available to 100,000
premises a week, and he now expected fibre to be available to
two-thirds of UK premises by spring 2014, more than 18 months
ahead of its original plan.