BT upbeat as cost savings beat target by £500m

BT is set to increase its cost-cutting drive by £500m as it revealed profits had sunk almost 50 per cent in the second quarter, yet management was more upbeat about prospects for next year.

The telecoms group cut 15,000 jobs last year as it battled falling revenues brought on by the downturn and is making "good progress" with cutting 15,000 more from its payroll.

The chief executive, Ian Livingston, said yesterday the company was ahead of schedule in cutting £1bn in 2009 and had raised the full-year target to £1.5bn. He said it was still focusing on cutting outside contractors, adding there was an "ethical" imperative to find new jobs for long-term employees.

BT's pre-tax profits fell from £494m to £275m in the three months to the end of September as the downturn and the cost of reducing its workforce told. However, the falls were better than much of the market expected.

Paul Howard, an analyst at Cazenove, said the results were "strong across the board.... The outperformance reflects excellent cost control with underlying staff costs down 12 per cent." Revenues were down 3 per cent at £5.1bn in line with analyst expectations. Mr Livingston said BT would announce plans for growth at the start of next year but was still in "self-help" mode as it looked to build a solid foundation.

"It's a quarter of progress, but we have lots of work to do. Only when we do this quarter-on-quarter can we bring back the credibility we lost 18 months ago," he said. The group said full-year revenues would be slightly better than expected and lifted the dividend by 5 per cent. Mr Livingston predicted free cash flow would hit £1.6bn, up from its previous target of £1bn.

Progress was shown at the group's troubled Global Services division, which provides outsourced networks and IT for largest companies. Mr Livingston reiterated his commitment to the division, saying: "Financially it can do way better. We're committed to turning it round and have no plans to sell."

BT admitted that it was not at the levels it wanted to be for BT Vision, its digital television business, and hopes for customer numbers in the "millions rather than the hundreds of thousands." Crucial to the division's growth plans are plans by media regulator Ofcom to force BSkyB to wholesale premium content – such as the Premiership football – to rivals including BT at cheaper rates. BT believes Canvas, the plan to bring internet television into the living room, will lift subscribers.

BT's pension deficit rose from £4bn in March to £9.4bn at the end of the second quarter. The company put it down to the assumed cost of providing pensions in the future under UK accounting rules. The group, which has agreed to pay £525m a year into the scheme, is in advanced discussions with the fund's trustees and the regulator over the scheme's valuation.