BT to cut 10,000 jobs as it gears up for recession

BT Group is to cut 10,000 jobs by April as it tries to slash costs in the face of the looming recession. The company became the latest in a slew of telecoms groups to announce deep cuts and at the same time revealed that profits had fallen 11 per cent in the second quarter.

BT said: "As part of our ongoing efficiency programmes, we expect to reduce our total labour resource by some 10,000 by the end of the current financial year." BT stressed that of those cuts, 6,000 would be in "indirect" labour, such as agency, contractors, subcontractors and offshore workers, with the rest coming from permanent staff. BT employs 160,000, of which 50,000 are indirect workers.

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Ian Livingston, BT's chief executive, called the move "pre-emptive". He predicted the recession would run for two years but that "BT will come out of this a stronger and a better company". This comes just days after the mobile phone giant Vodafone announced it was to introduce a £1bn cost-cutting plan, which is expected to involve job losses, and Virgin Media announced a headcount reduction of 2,200 in the next three years. BT said that while revenues were up 4 per cent to £5.3bn, pre-tax profits had fallen from £660m in the second quarter of 2007 to £590m, dragged lower by issues at its Global Services division.

Mr Livingston praised three of the four divisions – Retail, Wholesale and Openreach – which delivered ahead of target, but he said: "Profits in Global Services are simply not good enough and we are taking decisive action to put the matters right." The group raised the problems at its technology services arm two weeks ago, in what constituted a profits warning, which sent its shares crashing to their lowest level since listing 24 years ago.

It blamed issues over efficiency, a decline in the UK business and negative currency movements for the 36 per cent drop in the division's earnings before charges in the second quarter. The problems prompted the departure of the division's chief executive, François Barrault, who was replaced by group finance director Hanif Lalani. Mr Lalani said he has identified £40m worth of savings to be made at the division. The company expects to grow revenue in this financial year, but added that earnings before interest, taxation, depreciation and amortisation would probably show "a small decline".

The shares jumped 9 per cent to 122.5p yesterday, as the results – which came in ahead of forecasts – calmed analyst and investor fears in the wake of the profits warning.

Morten Singleton, analyst at Oriel Securities, said: "The bad news is out of the way... BT posted revenue and profit numbers ahead of our numbers and consensus from before the profit warning." The 5.9p interim dividend also came in higher than Oriel's expectation of 3.1p.

There was further good news over the company's pension scheme. BT has reached agreement with the unions over what Investec analyst Jonathan Groocock called "significant changes" which would reduce liabilities and are expected to reduce costs by £100m a year. Proposals included raising the retirement age to 65, increasing member contributions and changing from a final-salary link to average earnings. The pension also swung from a deficit in the first quarter to a £600m surplus.