Cost-cutting drive answers BT's call as group shares reach yearly high

Published on Thursday 12 November 2009 19:46

BT SHARES rose to their highest level in more than a year yesterday, after the firm increased its cost-cutting programme and raised its dividend forecast.

The group said it would strip out costs of at least 1.5 billion in the year to 31 March, 2010 – up to 500 million more than planned – adding that it expects to raise its full year dividend by 5 per cent.

Chief executive Ian Livingston, who has been forced to issue a string of profit warnings since taking charge last year, said substantial work had been done since unveiling major write downs at its international unit, Global Services, last year.

He said: "We have had another quarter of progress but there remains a lot more to do."

Livingston said he would continue to strip costs out of the business, even though its underlying costs in the six months to 30 September were 932m less than a year earlier.

The savings drive could see thousands more staff cut from the FTSE-100 group. About 15,000 people left the company in the year to 31 March and Livingston said he expected "a similar number" to leave in the current financial year.

Most of the cuts came from contractors and Livingston said BT would strive to keep losses among its permanent workforce to a minimum.

Profits in the six months to 30 September dropped 45 per cent to 547m, although the figure was in line with expectations.

Revenue was down 1 per cent in the period, and BT raised its revenue guidance slightly for the full year, although this reflected currency movements rather than an improving economy.

Livingston said that due to a continuing increase in unemployment, and the prospect of a rise in VAT, the consumer market "is probably going to be tough next year".

BT's retail business – where operating profits rose 9 per cent – was helped by the reluctance of customers to give up broadband.

Livingston cited a recent survey which claimed the majority of consumers would rather give up fresh fruit before the internet. Meanwhile, the number of programmes being watched on BT Vision, its on-demand television service, tripled on a year ago.

BT's troubled Global Services business, which has forced hundreds of millions in write downs over the last 18 months, showed an improved performance after major cost reductions.

Underlying earnings were 95m in the three months to September 30, up from 62m in the first quarter. Global Services continues to burn cash, and Livingston declined to name a target for when it would become cash flow positive.

"The problems were a number of years in the making and they will take a number to come around . . . but at least the direction of travel is better," he said.

Shares in the group, which dropped to just over 70p in March, climbed 3.7 per cent to 147.2p.