BT - Profits were better than expected, though employment has dropped sharply

[afp] Telecommunications company BT Group PLC said Thursday it made a better-than-expected profit of 208 million pounds ($310 million) during the three months through March as the company closed a year of sharp cuts in capital spending and underlying costs.

BT shares jumped 10.9 percent to 133.6 pence on the London Stock Exchange.

The net profit in the fiscal fourth quarter contrasted with a loss of 1 billion pounds a year earlier when the company posted massive losses in its Global Services division.

Revenue was down 2 percent to 5.36 billion pounds.

BT forecast that Global Services operating cash flow would show "significant improvement" in the current year and would turn positive in 2011/12.

"This is faster than we expected. Given the paltry valuation included for Global Services in the current share price, this could spark a re-rating of shares today," said Jonathan Groocock, analyst at Investec Securities.

For the full year, BT reported a profit of 1.03 billion pounds, compared with a loss of 193 million pounds a year earlier. Revenue was down 2 percent to 20.9 billion pounds.

BT says it had cut 20,000 jobs during the year, paring total employment to 128,000. Most of the cuts involved temporary staff, it said.

The company cut capital expenditure by 18 percent during the year to 2.5 billion pounds, and it trimmed 1.75 billion pounds, or 6 percent, from its underlying costs.

During the fourth quarter, however, capital expenditure rose by 12 percent as BT poured more money into expanding its fiber-optic network.

"BT defies the skeptics, demonstrating continued investment while paying down both debt and the pension deficit and able to promise continued dividend progression," said Morten Singleton, analyst at Collins Stewart. He rated the shares as "buy."

Keith Bowman, analyst at Hargreaves Lansdown Stockbrokers, credited BT with "a solid if not yet wholly convincing performance."

"Many hurdles remain: the group's staff pension scheme remains something of a millstone around the group's neck, whilst a strategy of cutting costs whilst improving customer service is always a tricky feat to achieve," Bowman said.

BT posts profit after year of sharp cuts