U.K. telecommunications firm BT Group PLC (BT.A.LN) Thursday raised its full-year profit and free cash flow guidance following a strong performance in the fiscal second quarter, underpinned by its global services operations and new broadband customers.

Chief Executive Ian Livingston said the company has made "significant progress in improving profitability and cash flow, enabling us to invest in building the foundations for revenue growth in 2012/13."

Livingston expects the roll-out of fiber, which has passed three million premises, as well as the growth in small-to-medium enterprises and global services to drive revenue growth.

BT expects annual adjusted earnings before interest, taxes, depreciation and amortization of around GBP5.8 billion, up from previous guidance of around GBP5.63 billion, and free cash flow before specific items to reach GBP2 billion by fiscal 2011--two years earlier than expected.

For fiscal 2012 and 2013, BT forecast free cash flow before specific items of more than GBP2 billion.

Adjusted Ebitda rose 3% to GBP1.45 billion in the second quarter ended Sept. 30 from a restated GBP1.42 billion, ahead of market expectations of GBP1.41 billion, primarily due to improved efficiency leading to lower costs.

Global services, which provides information-technology systems to big companies such as Unilever PLC (UL) and Novartis AG (NVS), booked a 45% rise in adjusted Ebitda to GBP138 million in the second quarter from a year earlier.

The unit also reported a 50% rise in order intake to GBP2.1 billion, which reflects new contracts with UBS AG (UBS) and Anglo American PLC (AAL.LN) as well as contract extensions with the U.K. Ministry of Defence and Network Rail.

BT added 114,000 new broadband customers in the second quarter after an intense marketing battle with rival British Sky Broadcasting Group (BSY.LN).

Its pay-television business, BT Vision, signed 24,000 net new customers in the quarter, taking its total customer base to 520,000. Of these, more than 50,000 have taken its Sky Sports services, which commenced in August.

BT plans to make further enhancements to its TV offering with 3D and faster high definition downloads available for Christmas, and the BBC iPlayer available on BT Vision in the second half of the year.

The better-than-expected second quarter performance and annual guidance upgrade was well received by the market, with the stock up 6 pence, or 3.5%, at 165 pence at 0912 GMT. It is the second biggest riser on the FTSE 100, which is slightly lower.

The numbers "indicate that BT remains well placed to cut costs better and faster than some of its European peers," Liberum Capital analyst Mark James said. He noted that BT's staff costs are down 4% to GBP1.45 billion in the second quarter, while France Telecom's (FTE) were up 3% recently.

However, BT's second quarter net profit fell 6.8% to GBP399 million from GBP428 million a year earlier because of a tax credit in the prior year.

Revenue fell 1.8% to GBP4.98 billion from GBP5.07 billion a year earlier on the back of fewer landline calls being made, which was widely expected.

BT last week detailed changes to the calculations for its hefty pension fund deficit that knocked GBP2.9 billion off its most recent valuation, a welcome relief to investors. The company is currently paying GBP525 million a year for the next three years to cut its GBP9.1 billion pension deficit.

BT declared an interim dividend of 2.4 pence, up 4% from a year earlier.

-By Lilly Vitorovich, Dow Jones Newswires; 44-0-207 842 9290; lilly.vitorovich@dowjones.com
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