BT is seeking to save £1.5 billion in costs as it reported an improved performance in the first half of the year.
The telecoms giant reduced its cost base by £900 million in the first six months of the year, with half of those savings coming from job cuts. It is believed that more than 10,000 staff have already left during the half, but the company shied away from increasing its guidance for 15,000 cuts this year.
Ian Livingston, chief executive, said it was “too early to speculate” whether BT’s job cuts target would rise. He said that the company expects to focus more on cost cutting in areas such as procurement and third-party staff. He said: “We have a duty to people that have worked for BT for 10 or 15 years to find them another job.” He added that it has retrained and redeployed thousands of employees, saying: “We have ex-engineers going into call centres, which means we need less third-party workers.”
The company has identified further cost savings at its troublesome Global Services division. Tony Chanmugam, finance director, said: “Undoubtedly we didn’t spend in the right way. We were technology-led, not market-led.”
Although the performance of Global Services was improving, Mr Livingston said there was still much to work to do before the unit was in shape. “It’s a global leader in what it does, but it is not a global leader in terms of financial results,” he said, adding that despite “solid” improvement, he was not tempted to talk up the former growth engine’s prospects. “We don’t deserve credibility for long-term guidance in Global Services.”
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However, Mr Livingston poured cold water on speculation that BT is looking to dispose of the Global Services division. “We have no plans to sell the business,” he said.
The higher cost saving target was accompanied by improved guidance from the company on revenue and free cashflow. It also committed itself to an increase in the full-year dividend of 5 per cent, dispelling speculation of a rights issue.
BT recorded a 3 per cent decline in revenue during the second quarter to £5.1 billion and a 44 per cent decline in pre-tax profit to £275 million, factoring in the cost of its restructuring. However, the company chalked up a 2 per cent rise in earnings to £1.4 billion — its first growth at that level since the first quarter of last year.
The company also reduced its debt to below £10 billion, a 10 per cent reduction. It expects its year-end debt to come in at a similar level despite its investment in its fibre-optic network.
However, BT’s pension deficit more than doubled to £9.3 billion from £4 billion six months ago as a result of movements in bond yields and inflation expectations. BT, which has committed to pay £525 million into its pension pot every year to reduce the deficit, said that the value of the assets in the scheme has risen by £3.3 billion over the period but that accounting rules had pushed liabilities higher.
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The pensions regulator has raised questions about the valuation assumptions used by BT and its trustees to calculate its liabilities, but Mr Livingston said that its trustees have used conservative methods to value the deficit.
On the consumer side of the business, BT said that its average revenue per user rose 6 per cent. It took a 43 per cent share of new broadband customers during the quarter while the number of customers subscribing to its BT Vision TV service rose to 436,000.
Mr Livingston said 90 per cent of new customers took a package of services during the quarter, mostly for broadband and TV. The company is already offering bundled services to better compete with its rivals.
O2 dominates competition
O2 added 292,000 new mobile phone users in the three months to September as it continued to outperform its competitors in the UK market.
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Matthew Key, chief executive of Telef?nica Europe, the mobile operator’s parent, said that O2 was the only UK mobile operator to raise revenue in the third quarter and took the lion’s share of new customers in the period. “Over the past 12 months, we have grown by 1 million new customers. The market has grown 1.4 million, so we have taken 68 per cent of the growth.”
O2’s two-year contract to sell the iPhone has ended. However, fear of customer exoduses to rivals appear unfounded so far, Mr Key said. He added that there had been an “almost imperceptible” change in O2’s iPhone sales since rivals revealed their plans.
O2 also performed well in the fixed-line broadband market, adding 70,000 new users in the quarter. With 21 million customers, O2 is larger than BT, its former parent, with 19.4 million UK lines.