July 27, 2018 / 6:34 AM / 9 months ago

UPDATE 2-BT eases investor nerves with better quarterly growth

* Adjusted core earnings rise 1 pct

* CEO says no falling out with board, expects to present Q2

* Says has confidence in Huawei as network supplier

* Shares up 3.5 pct (Adds CEO comments, analyst reaction, shares)

By Paul Sandle

LONDON, July 27 (Reuters) - BT Group beat earnings expectations in its first quarter thanks to the resilience of its mobile and consumer offer and an improvement in business and public sector work, easing investor concerns about its long-term strategy.

Core earnings of 1.8 billion pounds ($2.36 billion), up 1 percent and 62 million pounds ahead of consensus, lifted the telecom group’s shares on Friday by 4 percent.

But the positive reaction came too late for Chief Executive Gavin Patterson, whose departure was announced last month after his recovery plan failed to impress shareholders.

Patterson, who expects to stay in the job for the next quarter at least, said the company was making progress on the transformation he set out in May.

“Our customer experience metrics continue to improve and we have seen the successful launch of new converged products including BT Plus,” he said.

BT, Britain’s biggest mobile and broadband operator, recently started offering new packages that combine fixed and mobile technology to offer seamless connections to consumers.

Patterson said more than 100,000 people had signed up in the first six weeks. “It’s proving to be a real hit,” he said.

Shares in BT rose to an 11-week high after the update on Friday and were trading up 3.5 percent at 232 pence at 0912 GMT.

Analysts at Bernstein said it was “undeniably a good quarter, especially after the sobering guidance and rebasing of expectations in May”.

“Consumer, now including mobile/EE, remains the bright light in the business, although year-on-year growth slowed sequentially,” they said.

Underlying revenue fell 2 percent in the first quarter, in line with market expectations.

Britain’s government outlined an ambitious plan to build full-fibre broadband networks on Monday, followed the next day by BT offering telecom operators long-term discounts for moving customers onto faster connections.

Patterson said the government and the regulator, with whom he has had a fractious relationship, were now setting a clearer path to give homes and businesses the broadband and mobile infrastructure they needed.

However he will not be leading BT as it builds those networks.

He said on Friday his plan was not a “quick fix” and it needed a CEO to lead the company through the multi-year process.

“I’ve done the job for five years, it’s a typical stint for a BT CEO,” he said. “There’s not been any big falling out, there’s no skeleton or anything like that to come across.”

There was a fly in the ointment in the update, however - a 0.5 billion pounds error in its pension deficit made by independent external actuary Willis Towers Watson.

The company said the mistake would have no effect on its reported income, cashflow, dividend or triennial funding review, or on pension scheme members.

Patterson also said he was not concerned about a report questioning the security of its major equipment supplier, China’s Huawei.

“We are not prepared to put our network at any risk around security,” he said. “I feel very confident there is no risk to the network.” ($1 = 0.7639 pounds) (Editing by Kate Holton and Jan Harvey)

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