Further BT job losses feared as cost cutting escalates

BT has already announced 15,000 job losses this year, and there are fears this could increase after profits almost halved.

BT is ramping up its plans to cut costs as it battles with the continuing gloom in the economy, raising fears of further job losses, after reporting a near-halving in profits.

The company, which was forced to slash its dividend in May in order to save cash, also revealed that its pension fund, the largest private sector scheme in the UK, was £9.4bn in deficit at the end of September. It was £4bn in the red at the end of March.

The company has suffered from the effects of the recession and the dreadful performance of its Global Services unit, which carries out major IT projects for large companies and organisations, and has been slashing costs. Earlier this year it said it will axe 15,000 workers over the next 12 month on top of a similar number who left the business in 2008.

The job losses and other cost-cutting measures were originally designed to save the company £1bn in 2009, but today the company said that having already saved over £900m in the first half of the year it is now targeting annual savings of "at least" £1.5bn. The move is likely to increase fears that more jobs will be lost within BT.

The company's overall second-quarter and first-half results, however, were better than many in the City had feared.

Revenues in the second quarter of BT's financial year were £5.1bn, down 3% and roughly as analysts had been expecting, with reductions across the business as a result of the continuing economic gloom. For the six months to end September they were down 1% at £10.35bn. But the firm said it now expects annual revenues to be down between 3% and 4% this year, compared with its original forecast of a 4% to 5% drop.

Quarterly pretax profits, meanwhile, were £275m, down from £494m, and £547m for the first half compared with £991m last year, in part because of the cost of the job cuts. Profits before financial and other charges, however, were £1.4bn in the second quarter, up 2% and better than many in the City had expected.

The company also received a £215m tax credit, having resolved three year's worth of disputed returns with the government, which helped free cashflow for the quarter increase to £705m. For the year as a whole, the company had initially been forecasting it would generate over £1bn of cash; it now reckons that will be more like £1.6bn.

BT has warned on profits three times in the past year-and-a-half as a result of the dire performance of its Global Services business. Earlier this year the poor performance of the business, which made wildly over-optimistic profit projections, forced BT into a cash squeeze and it had to slash its dividend.

Since then, BT has reduced costs in the business and in the three months to the end of September it axed 1,600 staff in Global Services. The workforce is now 7,600 lower than it was a year ago.

The recession has also taken its toll, with revenues at the business down 3% to £2bn in the quarter, but the cost cutting helped Global Services increase profits before financial charges to £95m, up from £62m in the first quarter of the year.

The poor economic climate has also hurt BT's retail business, with revenues down 5% at £2bn, as business and residential customers become more careful with their cash. Again, the company has been cutting costs in the business and, as a result, quarterly profits before financial charges were up 11% in the quarter at £475m.

Source: The Guardian, 12th November 2009

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