Telecoms provider BT surprised the market with strong results in its enterprise services and consumer broadband units, lifting its shares more than 3 per cent today.
Britain's biggest fixed-line services supplier said its problematic Global Services unit would turn cash-flow positive this fiscal year, earlier than expected, as continuing cost cuts boosted the unit's core profit margin.
BT also said it gained market share in retail broadband in the quarter to end-December, adding 188,000 customers, partly due to strong take-up of its BT Vision Internet TV service.
"If you want cheap and cheerful, we've got it; if you want the best, we've got it," chief executive Ian Livingston told journalists on a conference call.
BT has started to build a high-speed fibre network in the UK, and increased capital expenditure by 28 per cent in the quarter.
Technology research firm Ovum said the performance of Global Services was surprisingly strong. The unit has been undergoing restructuring after a period of poor profitability under previous management as it chased large contracts.
"This is a huge bonus for the group - it shows they have cleared up some bad commercial deals very effectively," Ovum analyst Mark Giles wrote in a note.
BT's core profit rose 7 per cent in the quarter to end-December, despite a 3 per cent sales decline, as it continued to cut costs. Global Services sales fell 7 per cent but its profit margin rose to 7.1 percent from 5.8 per cent.
The company's total revenue fell 3 per cent to £5.04 billion, in line with expectations, while earnings before interest, tax, depreciation and amortisation (EBITDA) of £1.48 billion was just ahead of market forecasts.
Analysts had expected revenue of £5.05 billion and EBITDA of £1.46 billion.
BT said it expected Global Services to generate operating cash flow of around £100 million this fiscal year and £200 million pounds in 2011/12.
It said its pension liabilities, a huge concern for the group, had fallen to £40 billion from £43 billion in the nine months to end-December, while the market value of its pension scheme assets rose by £1.1 billion to £36.4 billion.
Greater clarity regarding its underfunded pension scheme have been a factor in BT's share rise over the past year, along with improvements at Global Services.
BT raised its full-year core earnings outlook in November to £5.8 billion, and said it expected to hit its target of generating free cash flow of £2 billion this year, two years early.
Reuters
