British Telecom today revealed that profits for the first six months of the year plunged by 45 per cent and increased its cost-cutting target for the year from £1 billion to £1.5 billion.

The company, which has already announced plans to cut 30,000 staff and has been working to turn around its Global Services division, said that profits for the six months to September 30 fell from £991 million last year to £547 million. Sales also fell, down 1 per cent to £5.1 billion.

However, today's results are better than expected and Ian Livingston, the chief executive of BT, increased the company's sales target for the year from an expected decline of between 4 per cent and 5 per cent to 3 per cent and 4 per cent. Shares in BT rose 3.6 per cent, up 5.2p, to 147.2p.

Mr Livingston said: "We have had another quarter of progress but there remains a lot more to do."

The telecoms group, which is in the process of restructuring after two profit warnings last year, said that dividends would increase by 5 per cent for the full year and announced an interim dividend of 2.3p per share.

Mr Livingston added: “With total cost reductions of over £900 million in the first half, we have made significant headway towards our previous target of well over £1 billion for the full year. We now expect to generate at least £1.6 billion of free cashflow this year, compared with our previous target of over £1 billion.

"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."

Second quarter earnings before interest, tax, depreciation and amortisation were up 2 per cent to £1.44 billion, which was marginally higher than forecast.

However, revenue from Global Services fell by 3 per cent to £2.02 billion. The group said that this was due to 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 group’s pension deficit was also higher than forecast at £6.8 billion net, compared with £2.9 billion on March 31 this year.

In May, the group said that the performance of Global Services — once the engine room of the company’s growth — was unacceptable and that it would have to take charges of £1.3 billion after the completion of contract and financial reviews at the unit.

The division, which provides networked IT services to companies, has been hit hard by the downturn as it becomes more cautious about how profitable its contracts will prove to be. The group will also take a £280 million restructuring charge on the unit, with further restructuring charges of £420 million over the next two years.

Francois Barrault resigned as chief executive of the unit in October last year amid troubles for the division and was replaced by Hanif Lalani, the group's finance director.

Contracts have since been renegotiated and parts of the enterprises division in France and Germany have been sold off. Now the group is concentrating on serving UK corporate customers and multinationals.

For the 12 months to March 31, the group reported a pre-tax loss of £134 million, compared with a profit of almost £2 billion the year before, largely wiped out by the £1.3 billion writedown on Global Services in the fourth quarter. Revenue for the period rose 3 per cent to £21.4 billion, up from £20.7 billion.

In May the group said that it would be making 15,000 more job cuts this year, following 15,000 in 2008.

An investigation is about to begin by Ofcom, the telecoms regulator, into BT’s pensions costs, to see whether it should take them into account when billing rivals for using its network. BT pays £525 million each year into its pension pot

Companies pay BT for the right to rent lines from it. The amount that BT can charge is set by the regulator and reviewed periodically.

The watchdog said that it “considers it right to consult with stakeholders on whether deficit payments should be factored in when considering how wholesale regulated charges are calculated”.

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