UN Unilever NV

U.K. telecommunications firm BT Group PLC (BT.A.LN) Thursday posted strong earnings that beat market expectations and raised its guidance, as a mix of faster Internet speeds and the recent addition of Sky Sports attracted more customers.

At Global Services, the company's IT-services division that has been subject to significant restructuring, earnings also rose sharply as cost reductions continued to feed through.

BT made "significant progress in improving profitability and cash flow, enabling us to invest in building the foundations for revenue growth in 2012/13," said Chief Executive Ian Livingston, who said he expects the roll-out of fiber, to which over three million premises now have access, as well as the growth in small-to-medium enterprises and Global Services to drive revenue growth.

BT added 114,000 new broadband customers in the second fiscal quarter after a fierce marketing battle with rival British Sky Broadcasting Group PLC (BSY.LN) as it started broadcasting Sky Sports in August.

News Corp. (NWS), owner of Dow Jones & Co., publisher of this newswire and the Wall Street Journal, has roughly a 39.1% stake in BSkyB.

BT's share of net broadband additions was 45%, "one of our highest shares ever," it said, as it accelerated the migration of customers to its higher speed-speed broadband service. BT said it now has 1.6 million customers on its 20 megabits per second broadband service, a six-fold increase on last year, and is adding 4,000 customers a week to its fiber-based BT Infinity service.

Its IPTV service, 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, the first indication of take-up since launch.

BT said it would further enhance the TV service to offer 3D programming and faster High-Definition downloads in time for Christmas, and would also add the BBC's popular iPlayer during the second-half of the financial year.

Global services, which provides information-technology systems to big companies such as Unilever PLC (UL) and Novartis AG (NVS), posted a 45% rise in adjusted earnings before interest, taxes, depreciation and amortization to GBP138 million in the second quarter from a year earlier. Earnings are adjusted for specific one-off items such as regulatory, operating and financial expenses.

The unit also reported a 50% rise in order intake to GBP2.1 billion, after it won 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 said it now expects annual adjusted Ebitda 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 quarter ended Sept. 30 from a restated GBP1.42 billion, ahead of market expectations of GBP1.41 billion, as improved efficiency led to lower costs.

The better-than-expected second quarter performance and annual guidance upgrade was well received by the market and at 1236 GMT the stock was up 5.6%, or 9p, at 168p, making it the biggest riser on a lower FTSE-100.

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 SA's (FTE) were up 3% recently.

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 as customers made fewer landline calls, as 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 a share, 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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