British telecoms group BT posted a better-than-expected 3 percent fall in first-quarter adjusted core earnings and said it had made a good start to its cost cutting programme, sending its shares soaring.
BT announced a restructuring with new spending and cost saving targets at its year-end results in May after two profit warnings at the multinational Global Services division prompted a massive writedown, a cut to the dividend and 15,000 job cuts.
The shares, which had already risen over 20 percent since the last results in May, gained 12 percent in early Thursday morning trading.
Britain's biggest fixed-line business said it had made a good start to the cost cutting, through renegotiating contracts and merging operations, and had achieved 357 million pounds in savings already.
"We have made a solid start to the year against a background of challenging trading conditions," Chief Executive Ian Livingston said. "BT Global Services is making progress although there is still much to do."
Analysts welcomed the results as a solid start to the year but they also noted concern over the group's pension deficit which widened to 5.8 billion pounds, from a deficit of 2.9 billion pounds at the end of March.
Execution analyst Will Draper said the revenue and earnings numbers were solid and welcomed the early signs on cost cutting, but he said the pension deficit would cause concern.
Daiwa analyst Michael Kovacocy, who has a buy rating on the stock, said the result would confirm his faith in management's ability to turn around Global Services.
For the first quarter, BT reported adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) before specific items and staff leaving costs of 1.37 billion pounds ($2.24 billion) for the three months to end June.
That compared to analyst forecasts of 1.27 billion pounds.
BT was forced to restructure at the end of last year after reviewing the Global Services division, a supplier of IT services to multinational companies which the telecoms group had for years touted as its growth engine.
It posted a 1.58 billion pound writedown for the unit in May after reviewing the division and some of its more optimistic contracts.
Underlying earnings at the Global Services division were down 66 percent but revenues were up 4 percent.
The fixed-line telecoms provider said overall revenues rose 1 percent to 5.24 billion pounds, also ahead of forecasts at 5.02 billion pounds.
"We are on track to deliver reductions in operating costs and capital expenditure of well over 1 billion pounds and to generate group free cash flow of over 1 billion pounds this year," Livingston said.
Free cash flow improved by 612 million pounds during the quarter to an outflow of 122 million pounds, also ahead of expectations.
