BT Group Plc, the U.K.’s largest phone company, aims to cut about 6 percent of its workforce in the year through March to improve profitability after reporting a slide in second-quarter earnings.
Most of the 10,000 cuts, out of a workforce of 160,000, will be in the area of “indirect labor” such as agency, contractors, subcontractors and offshore workers, the company said in a statement today. Earnings before interest, taxes, depreciation, amortization and costs to cut jobs dropped 1.3 percent to 1.43 billion pounds ($2.1 billion) in the fiscal second quarter.
BT surged the most in six years in London trading. The economic downturn makes it more difficult to win new clients and complete contracts, Chief Financial Officer Hanif Lalani said in a Television interview today. About 4,000 positions of the planned 10,000 have already been slashed, BT said. Job cuts among people working directly for BT will be largely achieved through natural turnover, the company said.
“It’s definitely the right thing to do,” said Andy Lynch, a fund manager at Schroder Investment Management Ltd., which oversees $2.9 billion. “It’s currently difficult to win new business, so cost cuts are necessary do defend profitability.”
BT gained as much has 14.2 pence, or 13 percent, to 126.7 pence, the biggest intraday surge since September 2002. The stock, which before today had lost 59 percent this year, traded at 124.7 pence as of 8:38 a.m. in London.
Analysts predicted second-quarter Ebitda excluding costs for job reductions of 1.37 billion pounds and sales of 5.24 billion pounds, the average estimates in a News survey.
`Not Good Enough’
The company aims to cut costs by 700 million pounds to 800 million pounds this fiscal year, Livingston told reporters in a conference call today. When asked how long he predicts the current economic slump will continue, he said it “will get worse before it gets better.”
BT said on Oct. 31 that second-quarter Ebitda was “slightly below expectations” in the three months through September. The company cited lower cost savings than forecast, a disappointing performance in the global services division and a slump in the U.K. The company reiterated Ebitda in the 12 months through March is predicted to show a “small” decline, while sales will rise.
“Three out of our four business units, BT Retail, BT Wholesale and Openreach are delivering on or ahead of target,” Chief Executive Officer Ian Livingston said today. “But profits in BT Global Services are simply not good enough and we are taking decisive action to put matters right.
The head of the global services unit, Francois Barrault, resigned on Oct. 30. He was replaced by Lalani.
