Bloomberg News

BT Advances After Maintaining Forecast for Profit Growth

November 01, 2012

BT Group Plc (BT/A), the biggest fixed-line phone company in the U.K., advanced after keeping its full-year profit target as cost cuts helped it avoid a drop in earnings for the latest quarter.

Adjusted earnings before interest, taxes, depreciation and amortization were little changed at 1.5 billion pounds ($2.4 billion) in the fiscal second quarter, which ended in September, London-based BT said today in a statement. Analysts had estimated 1.49 billion pounds, according to a Bloomberg survey of five analysts. The company kept its forecast for Ebitda growth for the full fiscal year and boosted its dividend.

BT is homogenizing its internal systems to curb costs and improving customer service to reduce turnover, Finance Director Tony Chanmugam said on a call with reporters today. The company, trying to halt falling sales as European corporate customers cut spending amid the debt crisis, said revenue will improve in the fiscal second half ending in March compared with the first half.

“It’s a gigantic company that has a ton of costs that they can still cut,” Robin Bienenstock, an analyst at Sanford C. Bernstein Ltd., said in an interview. Still, “they’re going to have to work a little bit harder to stay in the same place.”

BT advanced 6 percent to 225.3 pence at 10:54 a.m. London time trading after rising as much as 6.1 percent for the biggest intraday gain since March 23, giving the company a market value of 17.7 billion pounds. The stock had added 11 percent this year through yesterday.

Margin Surprise

Adjusted Ebitda as a percentage of revenue rose to 33.5 percent. That was higher than the 32.8 percent analysts had forecast and the 30.5 percent BT reported a year earlier.

Chief Executive Officer Ian Livingston has been expanding the company’s high-speed Internet service and targeting customers in faster growing markets in Asia, Latin America and the Middle East as the company works to offset slower demand from corporate customers in Europe. BT accelerated its 2.5 billion-pound fiber-broadband rollout for a second time.

Sales declined 8.6 percent to 4.47 billion pounds. Analysts had predicted 4.55 billion pounds on average. While picking up in the second half, revenue won’t show “an improved trend” for the full fiscal year 2013, BT said, contrary to what it projected in May. Excluding low-margin traffic that BT is required to carry by regulators, sales declined 5 percent.

Livingston said in July that European business customers outside the U.K. are committing to smaller contracts and delaying decisions about phone services.

High-Speed Web

To combat the slowdown in Europe, BT is rolling out high- speed fiber optic Web service. The company said today that it expects to cover two-thirds of the U.K. by the spring of 2014, 18 months ahead of its original schedule, and that it will hire more than 1,000 engineers this year for the project.

The company has also invested in sports rights, competing with British Sky Broadcasting Group Plc (BSY) for English Rugby matches and Premier League soccer games. The company said it will release its BT Sport service by next summer.

BSkyB, the U.K.’s biggest pay-television provider, reported today an increase in fiscal first-quarter operating profit that beat analyst estimates as it won customers for high-speed Web access.

BT increased its interim dividend by 15 percent to 3 pence a share. Free cash flow will be about the same this fiscal year as a year earlier, the company projected.

To contact the reporter on this story: Amy Thomson in London at athomson6@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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