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UPDATE 3-Global Services surprise lifts BT results, shares

Published 02/03/2011, 05:13 AM

* Q3 revenue 5.04 bln pounds; EBITDA 1.484 bln pounds

* Global Services to be free cash flow positive this year

* BT shares rise 3.4 percent

(Adds CEO, analyst comments; shares)

By Georgina Prodhan

LONDON, Feb 3 (Reuters) - British telecoms provider BT surprised the market with strong results in its enterprise services and consumer broadband units, lifting its shares more than 3 percent on Thursday.

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.

Former state monopoly BT, which competes with Virgin Media and TalkTalk in consumer broadband, has started to build a high-speed fibre network in the UK, and increased capital expenditure by 28 percent in the quarter.

Shares in BT rose 3.4 percent to 184.6 pence by 1001 GMT and were among the top gainers in a flat European telecoms index. The shares have risen 30 percent in the past year.

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 percent in the quarter to end-December, despite a 3 percent sales decline, as it continued to cut costs. Global Services sales fell 7 percent but its profit margin rose to 7.1 percent from 5.8 percent.

The company's total revenue fell 3 percent to 5.04 billion pounds ($8.2 billion), in line with expectations, while earnings before interest, tax, depreciation and amortisation (EBITDA) of 1.48 billion pounds was just ahead of market forecasts.

Analysts had expected revenue of 5.05 billion pounds and EBITDA of 1.46 billion, according to Thomson Reuters StarMine SmartEstimates, which weights analysts' forecasts according to their past accuracy.

BT said it expected Global Services to generate operating cash flow of around 100 million pounds 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 pounds in the nine months to end-December, while the market value of its pension scheme assets rose by 1.1 billion pounds 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.

The shares now trade at 9.5 times 2012 earnings, according to Reuters Estimates, still below the European telecoms average of 12.

BT raised its full-year core earnings outlook in November to 5.8 billion pounds, and said it expected to hit its target of generating free cash flow of 2 billion pounds this year, two years early. ($1=.6168 Pound) (Reporting by Georgina Prodhan; Editing by Will Waterman)

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