Business | Economy
Job cuts rescue BT's falling stocks
Britain's BT Group beat second-quarter earnings forecasts yesterday and announced 10,000 job cuts and a possible boost to its pension scheme, sending its shares up over 12 per cent just days after a profit warning.
- Reuters
- Published: 23:54 November 13, 2008
London: Britain's BT Group beat second-quarter earnings forecasts yesterday and announced 10,000 job cuts and a possible boost to its pension scheme, sending its shares up over 12 per cent just days after a profit warning.
Shares in the former state telecom group crashed to historic lows less than two weeks ago after it warned about the profitability of its growth engine Global Services division.
Analysts at the time said BT was hitting a "perfect storm", with concerns over its pension scheme, profitability, capital expenditure plans and dividend all coming at once.
However, they welcomed the results yesterday as fin-ally bringing some good news to the company.
Its shares were up over 12 per cent at 126 pence at 0925 GMT (1.25pm UAE time) yesterday.
BT said it had reviewed its pension scheme and proposed a range of changes such as raising the age of retirement and increasing employee contributions which could reduce the ongoing cost of the defined benefit pension scheme by about £100 million (Dh544.2 million) per year.
Support from union
It is consulting on the proposals and has won support from its main union.
"The shares will likely react positively today on the pension news alone," Morgan Stanley analysts said in a note. "But longer term, risk-reward is now much more positively skewed.
"We believe that BT shares have been caught in a perfect storm over the last 12 months where all potential negatives (stock market impact on pensions, fibre investment and capex warning, Global Services profit warnings, mobile broadband) have already substantially materialised."
BT said last month it expected to report group revenue ahead of original forecasts but that earnings per share and earnings before interest, tax, depreciation and amortisation (EBITDA) would be slightly below forecasts due to the poor performance of its Global Services unit.
Its second-quarter EBITDA, reported yesterday, was down 1 per cent, but ahead of forecasts at £1.43 billion, while revenues were up 4 per cent at £5.30 billion.
Analysts had been expecting EBITDA of £1.38 billion and revenues of £5.28 billion, according to a poll of 7 brokers who revised their forecasts after the warning.
BT chief executive Ian Livingston told reporters on a conference call he was confident the group would improve profitability at Global Services, which provides IT services to multinational companies.
Hanif Lalani, currently group finance director and the new Global Services chief executive, said he had already established £20 million of cost savings and was looking at further discretionary costs.
As part of the ongoing group drive to cut costs, BT said it would reduce its total workforce by around 10,000 this financial year, with around 4,000 from its direct BT staff and the remainder from contractors, consultants and agency staff.
BT has a global workforce of about 160,000 direct and indirect staff and it is the latest British company to announce job cuts in a matter of weeks.
Cable operator Virgin Media is to cut 2,200 posts, automotive and aircraft engineering company GKN is to cut over 1,400 and broadcaster ITV is cutting around 1,000.
Natural turnover
BT said it was halfway through this process and had already cut 4,000 jobs to date.
It said it hoped to achieve the cuts through natural turnover and that the direct jobs were mostly coming from Britain.
Asked if BT could cut more than the 10,000 of its staff, Livingston pointed out that the group had once employed around 250,000 and said he did not think this cut was a one-off.
The group had free cash inflow of £369 million, up by £198 million on last year.
Its pension was in surplus by £0.6 billion net of tax, compared with a surplus of £2 billion at the end of last March.
"We continue to expect BT group revenue to grow for the full year," Livingston said in a statement.
"However, because of the reduction in profitability in BT Global Services, group EBITDA is likely to show a small decline in the current financial year," Livingston added.
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