BT turnaround cheers City

BT yesterday cheered investors by resuming dividend payments after an 18-month hiatus and by showing signs of a turnaround after a year in which it demerged wireless business mmO2 and launched the UK's largest rescue refinancing to date.

But BT is still feeling the effect of the widespread turmoil in the telecoms market and yesterday slashed the value of its Ignite pan-European network and several recent acquisitions by £2.6bn.

BT chairman Sir Christopher Bland, presenting the fourth-quarter results, said a "cultural change" was under way at the revitalised company. "It has not been an easy year, but we have taken the hard decisions early and are now in a position of relative strength," he said.

After raising almost £6bn from shareholders in a rights issue last spring and selling £8bn worth of businesses, BT has cut its debts in half, to £13.7bn, at a time when major European rivals such as France Télécom and Deutsche Telekom are struggling. New chief executive Ben Verwaayen said BT's comparatively strong financial position has helped it win back customers. "You are seeing an absolute flight to quality - that does not mean an automatic flight to BT, but there is a flight to quality."

BT shares yesterday gained almost 10% to close at 279p, just a few pence off their high for the year so far. Mr Verwaayen, who took up his post in February, has placed the provision of high-speed internet access services, or broadband, at the core of the business. BT said yesterday it has over 220,000 broadband customers, taking it to pole position in the UK market, and is receiving 11,000 orders a week.

To reach Mr Verwaayen's target of 1m broadband customers by summer next year, BT will have to increase weekly orders to 15,000, something which Mr Verwaayen said he believes it can manage with its recently launched no-frills internet service.

The City was particularly pleased to see BT's core UK telecoms business, BT Retail, maintain its share of voice traffic after four years of decline as people abandoned fixed-line phones for mobiles.

David Brundish, an analyst at JP Morgan, summed up the mood in the Square Mile in a note to investors titled: Rumours of the death of fixed [line phones] have been greatly exaggerated.

Although turnover was essentially flat last year at BT Re tail, run by flamboyant Frenchman Pierre Danon, BT's extensive cost-cutting programme helped increase operating profits in the fourth quarter to £231m from £174m in the same period of 2001.

Ignite, however, continued to show the effects of the slump in prices for international capacity as losses in the three months to the end of March ballooned to £108m from a loss of £77m. BT's new strategic plan demands that Ignite's loss-making European businesses be turned around by next March or face closure.

BT announced profits were up 43% in the three months to the end of March to £371m, slightly ahead of analysts' forecasts. But after a write-down in the value of assets and acquisitions of £2.6bn and a further £300m of restructuring charges, the company made a fourth quarter loss of £2.5bn.

For the year as a whole BT's remaining units made profits of £1.3bn, down almost a third. The group, which suspended dividend payments in November 2000 and asked shareholders for more money, said it would pay a dividend of 2p.