BT is set to apply immediate cost-cutting measures after posting disappointing annual financial results last week.

The telecoms giant’s pre-tax profit for the 2008 financial year remained flat at £2.5bn, with revenue equally static at £20.7bn for the year.

Scott Morrison, research vice president at analyst Gartner, said the results were better than many analysts expected. But incoming BT chief executive Ian Livingston, who will replace Ben Verwaayen on 1 June, is expected to implement significant cost cuts to improve the company’s profit margins.

“Something has to give over the next two quarters, whether it is cost cuts or BT delivering some harder estimates to the market,” said Morrison.

“The fact that Livingston is coming on board suggests the former,” he said.
“Internally there is a kind of customer-facing interface between BT’s divisions, which is an unnecessary overlap, and some of the costs will have to be cut out of that.

“These are not necessarily large chunks of BT’s internal employee base, but contractors who are very expensive.”

There were some bright spots for the company.

Gross profit at its Global Services IT services arm increased slightly from £2.7bn in 2007 to £2.8bn, while BT Retail, which sells broadband and telephony services direct to customers, also grew gross profit slightly from £2.9bn in 2007 to £3.1bn.

However, these were offset by declines in the wholesale business and static profits recorded by the Openreach network access division.