BT unveils buyback, becomes top in UK broadband

LONDON, May 17 (Reuters) Britain's BT Group Plc unveiled a 2.5-billion-pound ( billion) share buyback programme on Thursday and said it had dislodged cable rival Virgin Media as the UK's top broadband provider.

The UK's dominant fixed-line telecoms operator also raised its dividend payout ratio to two-thirds of earnings a year earlier than expected, and posted fourth-quarter underlying core earnings in line with forecasts and an upbeat outlook.

The numbers were in stark contrast with some of its larger European peers, notably Deutsche Telekom, which last week reported a 5.8 percent drop in core earnings and is taking the knife to costs.

BT said it expected to complete its new buyback programme over two years ending in March 2009 and set a final dividend of 10 pence, taking the total for the year up 27 percent to 15.1p.

Chief Executive Ben Verwaayen called it a ''bumper payday'' for shareholders, many of whom had to endure a painful time at the start of the decade when BT struggled under a debt mountain and was forced undertake a record 5.9 billion-pound rescue rights issue in 2001.

BT posted underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of 1.54 billion pounds for the three months to March 31 compared with 1.50 billion a year ago, its fifth straight quarter of growth.

Revenue rose 3 percent to 5.29 billion pounds, below forecasts, with so-called new wave revenues from broadband and corporate IT services rising 14 percent. Analysts had on average forecast EBITDA of 1.53 billion, with revenue forecasts ranging between 5.31 billion and 5.41 billion pounds.

However, shares in the company fell after a positive start, and analysts said there was some disappointment the buyback programme was not more aggressive. By 1042 GMT, the stock was 2.06 percent down at 308-3/4 pence.

''People had their eyes on the buyback and it has come in ahead of expectations, but not massively so. I think today's negative share price reaction is overdone,'' said Investec analyst Christian Maher.

Another analyst said hedge funds were sellers of the stock.

''The market environment is that people are looking for a bid stock and BT is not perceived to be one,'' said Dresdner Kleinwort analyst Lawrence Sugarman.

CEO Verwaayen told reporters that BT had not received any bid approach from private equity groups, nor was it in any takeover discussions.

RESTRUCTURING COST The group said a major reorganisation it announced last month would cost about 450 million pounds and would generate a payback in two to three years.

''We have delivered on our commitments and are confident we will continue to grow revenue, EBITDA, earnings per share and dividends over the coming year,'' outgoing Chairman Christopher Bland said in a statement.

BT said it did not expect the buybacks to affect its credit rating, as its cash flows, pension fund profile and improving finances could easily support additional debt to fund share repurchases. Its net debt stood at 7.8 billion pounds at the end of March.

That stance won support from ratings group Fitch, which said the new buyback programme could be accommodated within BT's existing BBB+ rating.

BT said its retail unit accounted for 32 percent of net DSL broadband additions during the quarter, ahead of most expectations and dislodging Virgin Media from the number one position.

BT said it had a 26 percent share of the overall retail broadband market with more than 3.66 million customers.

REUTERS DKS RS1706