BT today reported second quarter profits of £677m - a six per cent fall on the £722m earned in the year ago quarter.

The firm is in the process of restructuring following two profit warnings last year and problems in its the Global Services division, a supplier of IT services which has struggled with some troublesome contracts such as the National Programme for IT.

Chief executive Ian Livingston was cautiously optimistic about the process.

“We have had another quarter of progress but there remains a lot more to do, " he said. "With total cost reductions of over £900m in the first half, we have made significant headway towards our previous target of well over £1bn for the full year."

The Global Services division continued to struggle with revenues falling another 6 per cent on the year ago quarter to £2bn.

Revenues in its Retail division fell 3 per cent to £2.06bn though core earnings rose by 11 per cent.

And the firm also revealed that the deficit of its final salary pension scheme has more than doubled in the past six months from £4bn to £9.3bn. BT is continuing efforts to reduce its pension deficit, paying £525m into the scheme in its current financial year, and committing to the same amount in 2010-11 and 2011-12.

But BT said its trading conditions are now improving and it increased revenue and dividend forecasts for the full year. It now expects its revenues for the year to 31 March 2010 to decline by between 3 per cent and 4 per cent, better than its previous guidance of a fall of between 4 per cent and 5 per cent.