British telecommunications group BT Group Plc (BT-A.L,BT) reported Thursday an increase in net profit for the second quarter, boosted by a specific tax credit, while pre-tax profit dropped 44% from last year, hurt by lower revenues. Further, the company raised its full-year forecast for revenue, expecting lower decline than projected earlier. BT Group also declared a lower interim dividend, but said it expects to increase full-year dividend by around 5%.
Net profit for the quarter was GBP 428 million or 5.4 pence per share, higher than last year's 378 million or 4.9 pence per share. The company said its prior year results were restated for the impact of customer account moves and internal trading model changes.
The latest quarter results included a gain on specific items of GBP 141 million or 1.8 pence per share, while prior year's results included a charge of GBP 28 million or 0.4 pence per share.
The specific items for this year's second quarter included, among other charges and gains, a GBP 52 million revenue provision for regulatory settlement, a tax credit in respect of settlement of prior tax years of GBP 215 million and BT Global Services restructuring charges of GBP 49 million.
Before specific items, profit for the quarter fell to GBP 287 million or 3.6 pence per share from GBP 406 million or 5.2 pence per share last year.
The second quarter results also included leaver costs of 0.2 pence per share and net interest expense on pensions of 0.6 pence per share, while last year's results included leaver costs of 0.4 pence per share and net interest income on pensions of 0.8 pence per share.
On an adjusted basis, excluding specific items, leaver costs and net interest on pensions, earnings decreased 8% to 4.5 pence from 4.9 pence in the previous year, largely due to the higher depreciation and amortization expense.
Second-quarter profit before tax fell 44% to GBP 275 million from GBP 494 million a year earlier. Pre-tax profit, before specific items, was GBP 370 million, down from GBP 532 million in 2009, and adjusted pre-tax profit declined 6% to GBP 461 million from GBP 490 million a year ago.
Total revenue for the quarter declined to GBP 5.07 billion from GBP 5.303 billion in the previous year. Before specific items, quarterly revenues were GBP 5.122 billion, down 3% from last year's GBP 5.303 billion, while underlying revenue, excluding foreign exchange movements and acquisitions, fell 6% partly reflecting the challenging market conditions.
Segment-wise, BT Global Services recorded revenues of GBP 2.024 billion, down 3% from last year, and underlying revenue decreased 8%, reflecting "the economic conditions, lower wholesale call volumes in continental Europe, mobile termination rate reductions, the continued decline in UK calls and lines and a decline in equipment sales," the company noted.
Revenues from BT Retail declined 5% year-over-year to GBP 2.062 billion, and the drop was 6% on an underlying basis, mainly due to a reduction in calls and lines revenue. The ongoing challenging market conditions reflecting the current economic climate, particularly in the business market, and competitive pressure has contributed to a 6% and 8% decline in Consumer and Business revenue, respectively. BT Wholesale revenues dropped 4% to GBP 1.125 billion, mainly on the impact of mobile termination rate reductions and reductions in conveyance, circuits and international direct dial revenues, partially offset by continued growth in managed network solutions revenue.
Openreach generated revenues of GBP 1.285 billion, down 1% from last year, reflecting lower prices and a depressed housing market, partly offset by growth in Ethernet services that recorded 24% revenue growth on continued migration of lines to external communication providers.
In the quarter, total operating profit fell 15% to GBP 550 million from GBP 648 million last year, and adjusted operating profit dropped 6% to GBP 677 million from GBP 722 million a year earlier. Adjusted EBITDA increased 2% in the quarter to GBP 1.436 billion, reflecting progress in all lines of business driven by the delivery of cost savings.
For the first six months of fiscal 2010, BT Group's profit dropped to GBP 642 million or 8.1 pence per share from GBP 760 million or 9.7 pence per share last year. Profit before specific items declined to GBP 531 million or 6.7 pence per share from GBP 807 million or 10.3 pence per share a year ago. Adjusted earnings were 8.8 pence, down 12% from 10.0 pence in the previous year.
First-half pre-tax profit dropped 45% to GBP 547 million from GBP 991 million a year ago, and adjusted pre-tax profit fell 12% to GBP 888 million from last year's GBP 1.009 billion. Revenue for the period edged down to GBP 10.305 billion from GBP 10.480 billion in 2009.
Commenting on the results, Ian Livingston, Chief Executive, said, "We have had another quarter of progress but there remains a lot more to do. With total cost reductions of over £900m in the first half, we have made significant headway towards our previous target of well over £1bn for the full year. We now expect to generate at least £1.6bn of free cash flow this year, compared with our previous target of over £1bn. We are investing in the future of the business with an enhanced and accelerated programme of fibre deployment and wider roll out of faster broadband speeds, all within our capital expenditure plans."
Looking ahead, BT Group said it now expects full-year revenue to decline in a range of 3% to 4%, better than the previous forecast of 4% to 5% decline.
Capital expenditure for the year is now projected to be around GBP 2.6 billion, lower than previous projection of around GBP 2.7 billion, due to increased efficiency. Total underlying cost reductions are now expected to be at least GBP 1.5 billion this year, while the company's prior forecast was well over GBP 1 billion.
Further, the company said its Board declared an interim dividend of 2.3 pence per share, down 57% from last year's 5.4 pence, which will be paid on February 8, to shareholders on the register on December 29, 2009. The company added that its Board expects to increase the full year dividend for 2009/10 by around 5% over last year, reflecting the progress of the business.
BT closed Wednesday's regular trading session at $23.44, up $0.12 or 0.51%, on a volume of 240,000 shares.
On the London Stock Exchange, BT-A.L is currently trading at 148.10 pence, up 6.10 pence or 4.30%, on a volume of 22 million shares.
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