BT Earnings Fall Less Than Estimated on Costs of Sport Channels

BT Group Plc, the biggest U.K. phone company, reported a smaller-than-projected drop in profit before some items after adding subscribers to its new sports channels.

Second-quarter earnings before interest, taxes, depreciation and amortization fell 3.6 percent to 1.43 billion pounds ($2.29 billion) excluding some items, the London-based company said in a statement today. Analysts had projected Ebitda of 1.41 billion pounds, data compiled by Bloomberg show.

More than 2 million customers have signed up for BT Sport, and most were existing clients, Chief Executive Officer Gavin Patterson said on a call. BT is investing 1 billion pounds over three years in rights alone for the BT Sport and ESPN channels it began broadcasting on Aug. 1. The channels, which compete with those of British Sky Broadcasting Group Plc, are free for customers who sign up for Internet packages.

“They have to do it, though I think it’ll be more expensive than people think, because otherwise they don’t have the tools to compete with Sky at home,” said Guy Peddy, a London-based analyst for Macquarie Bank Ltd. who rates the shares “underperform.”

BT rose 1.7 percent to 375.7 pence in London trading at 10:28 a.m. The shares have advanced 63 percent this year, giving the company a market value of 29.7 billion pounds.

EE Agreement

The “vast majority” of the existing broadband customers who signed up for BT sport have renewed contracts, “so you don’t actually see all of the benefit of that in the current quarter,” Patterson said on the call.

BT signed a wholesale agreement with EE, the biggest mobile-phone service provider in the U.K., to offer mobile services to its business customers. That accord, in conjunction with fourth-generation mobile spectrum that BT acquired this year, could result in some “very interesting propositions” for consumers as well, Patterson said. The company doesn’t currently offer mobile-phone service for non-business subscribers.

Revenue was little changed at 4.49 billion pounds in the quarter. Analysts had estimated sales of 4.45 billion pounds.

BT is cutting costs including capital spending and labor expenses to maintain Ebitda as it builds up its television offerings. Adjusted earnings per share rose 2 percent to 6 pence, beating analysts’ 5.5 pence estimate.

Cost Cuts

“We still have inefficiencies in the business; we have a long way to go,” Chief Financial Officer Tony Chanmugam said in an interview today on Bloomberg TV. “We can procure better, make better contracts.”

The company said it expects revenue, excluding payments for carrying other companies’ calls on its network, to improve this fiscal year. Adjusted Ebitda will be 6 billion pounds to 6.1 billion pounds this year and as much as 6.3 billion pounds next year, the company said. Analysts in a Bloomberg survey had forecast 6.04 billion pounds in Ebitda this year and 6.21 billion pounds next year.

Patterson became chief executive officer in September when his predecessor, Ian Livingston, left to take a post as U.K. minister of state for trade and investment. Patterson, who joined BT in 2004, was previously head of BT’s retail unit, helping to create the TV and high-speed Internet businesses.

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