BT's 3Q Profits Drop

But sales edge up and operating profit increases at Britain's main fixed-line phone company.
LONDON (AP) -- BT Group PLC, Britain's main fixed-line phone company, reported a 38% drop in net income for the third quarter from results that included a big one-time gain a year ago. Its quarterly operating profit climbed 43%, however, as sales edged higher.

BT said Thursday its net income fell to 445 million pounds ($721 million) for the October-December period from 721 million pounds a year ago. The 2001 figure benefited from a nonrecurring gain of 1.07 billion pounds ($1.73 billion) from the sale and leaseback of telephone exchanges and other properties.

Operating profit soared to 752 million pounds ($1.22 billion) from 426 million pounds in 2001.

Third-quarter sales excluding discontinued activities rose 1% to 4.70 billion pounds ($7.61 billion) from 4.66 billion pounds in 2001.

BT Retail, the company's largest division, reported that quarterly revenues from voice services fell due to a 5% decrease in call volumes on its fixed-line network. A sharp rise in sales of newer services more than made up for this decline.

Underlying sales for the BT Wholesale business slid by 2% in the quarter, due partly to unfavorable market conditions for its traditional products, the company said.

BT Ignite, the corporate services unit, posted a 1 percent drop in underlying sales, while strong demand for new broadband products helped boost sales for the internet business BT Openworld.

The company strengthened core profits by cutting costs. It reined in capital expenditure, spending less than expected for the quarter, and reduced interest expense by trimming 195 million pounds ($316 million) off its debts.

Among its exceptional, one-time gains for the quarter, BT earned 102 million pounds ($165 million) before taxes on the sale of its stake in British Sky Broadcasting PLC and Italian telecoms operator Blu.

"These are excellent results. We are achieving our key goals of improving cash flow, earnings per share and customer satisfaction. These results demonstrate a substantial increase in profitability," chief executive Ben Verwaayen said.

Although the results came in near the top end of the analysts' consensus, concerns about BT's pension fund appeared to weigh on its share price. BT shares fell 5% to 173.75 pence ($2.81) in afternoon trading.

Under accounting rules taking effect this year, British companies must report on their balance sheets any surplus or deficit in their pension funds. The slide in stock markets has left many companies with underfunded pensions, and these deficits will become explicit under the new rules. BT said it expects to face a deficit of 1 billion-1.5 billion pounds ($1.6 billion-2.4 billion).

The company has made payments to its pension funds of 200 million pounds ($324 million) each year since 1999. It hasn't said if it will need to make a further cash injection.

For the first nine months of the year, its net income was 1.04 billion pounds ($1.68 billion) compared to 3.59 billion pounds in 2001.

Sales rose to 13.9 billion pounds ($22.5 billion) from 13.7 billion pounds last year excluding discontinued activities.

BT expects to collect 2.6 billion pounds ($4.2 billion) related to the sale of its stake in Cegetel, a French telecommunications company. The money would go toward further reducing its 12.9 billion pounds ($20.9 billion) in debts, the company said.

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