BT's recovery makes progress as CEO heads for exit

By Paul Sandle

LONDON (Reuters) - Smartphone sales and cost savings helped BT beat market expectations for first-half earnings on Thursday, with its departing chief executive saying his recovery plan was working.

Gavin Patterson, who is being replaced as CEO by Worldpay's Philip Jansen in February, said BT was improving customer service, accelerating the roll-out of full-fibre networks and transforming its operating model.

Shares in the British leader in both broadband and mobile rose by more than 10 percent after it nudged its guidance for the full year higher and first-half earnings rose 2 percent.

"Despite increasingly competitive fixed, mobile and networking markets and continued declines in legacy products there is no change in our overall outlook for the full year," Patterson said, adding that based on current trading the company expected earnings to be in the upper half of its range.

 

Citi analysts, who have a "neutral" rating on BT shares, highlighted "steady improvements in the underlying trends".

Patterson, who has run BT for more than five years, announced a shake-up in May to address a damaging accounting scandal and a poor customer service record.

However, a lukewarm reaction to the strategy, which involved 13,000 job cuts, led chairman Jan du Plessis to decide a leadership change was needed.

Patterson said the plan was working and he intended to maintain momentum as he prepared his departure.

"We were confident of our strategy when we set it out in May and the strategy had a three-to-five year horizon," he said.

BT posted adjusted half-year core earnings of 3.68 billion pounds ($4.74 billion) and said it expected earnings for the year to be at the upper end of its 7.3-7.4 billion pound range.

Adjusted revenue slipped 1 percent to 11.62 billion pounds as regulated price reductions in its broadband network, which serves other operators as well as BT, and declines in its enterprise businesses offset growth in consumer.

BT's shares rose to 266 pence, their highest since January, but are well off a high of 5 pounds during Patterson's tenure and trade on only around a nine times forward earnings multiple.

FIBRE BROADBAND COMPETITION

BT's consumer unit, its biggest by revenue, reported a 6 percent rise in second-quarter earnings, well ahead of forecasts, due to demand for new devices like iPhones.

Monthly churn, the number of customers leaving, in fixed and mobile rose slightly to 1.6 percent and 1.2 percent.

Superfast broadband competition heated up in September when some of BT's biggest competitors, including Sky and TalkTalk, gained access to volume discounts on some fibre products provided by its networks arm Openreach.

Patterson said this was "was exactly around the range of outcomes that we saw potentially opening up in the marketplace."

BT said BT Plus, its first high-end converged consumer product, now had around half a million subscribers, up from more than 100,000 at the end of June.

Activist investor Greenlight Capital has suggested BT's new management could unlock value by spinning off Openreach, but Patterson said no major shareholder was pushing for this.

($1 = 0.7767 pounds)

(Editing by Sarah Young/Keith Weir/Alexander Smith)