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 ``indirect labor'' such as agency workers, contractors, subcontractors and offshore employees, the company said in a statement today. Earnings before interest, taxes, depreciation, amortization and costs to cut jobs fell 1.3 percent to 1.43 billion pounds ($2.1 billion) in the fiscal second quarter.
BT posted the biggest intraday surge 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 Bloomberg Television interview. About 4,000 of the planned redundancies have already been completed, BT 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 to defend profitability.''
BT gained 10 pence, or 8.9 percent, to 122.5 pence in London, after jumping as much as 13 percent earlier. Before today, the stock had lost 59 percent this year.
Union Talks
Chief Executive Officer Ian Livingston said BT doesn't plan compulsory job cuts. Job cuts among people working directly for BT will be largely achieved through natural turnover, BT said.
The Communication Workers Union will discuss the cuts with management, the union said in a separate statement. It will oppose compulsory redundancies by ``whatever means necessary.''
The company aims to cut costs by 700 million pounds to 800 million pounds this fiscal year, Livingston told reporters in a conference call. The current economic slump ``will get worse before it gets better,'' the CEO said.
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 Bloomberg News survey.
BT said 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.
`Not Good Enough'
``Three out of our four business units, BT Retail, BT Wholesale and Openreach are delivering on or ahead of target,'' 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.
The company has sufficient funds for the next two years and ``there is no need for us to require any more liquidity until the end of 2010,'' Lalani said in the interview.
The finance chief said BT will consider the issue of its full-year dividend at the end of the year. BT plans to pay an interim dividend of 5.4 pence per share, the same as last year.
BT also said planned changes to its pension program will help to cut costs by about 100 million pounds a year. The company proposed this week to raise the retirement age to 65 from 60, base payouts on career average pay instead of final salary and build up pension entitlement at a slower rate.
The Communication Workers Union and the Connect Union both said they will put the proposed agreement to their BT members in a ballot with a recommendation to accept it.
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