BT Plc confirmed its full-year targets as demand from multinational corporations and consumers for broadband enabled it to post higher than expected core profits and sales in the second quarter.

The group said it had grown cash flow, profits and underlying revenue after cutting yet more costs, although the pension deficit was slightly higher than expected due to the impact from recent market volatility.

Some analysts also said the dividend was slightly below forecasts.

We expect to continue to offset the economic headwinds through improved customer service and processes, better efficiency, and investment in the future of the business, Chief Executive Ian Livingston said on Thursday.

Our performance in the quarter reinforces but does not change our outlook for the year.

BT, which competes with Virgin Media and TalkTalk and sells wholesale to rivals, has been steadily recovering after it issued profit warnings in 2008 and 2009 over the poor running of its Global Services division.

The country's biggest fixed-line telecoms supplier has since cut costs heavily to grow profits, and the shares have risen over 100 percent since it started to show signs of recovery in April 2009.

The Global Services unit provides telecom services to multi-national corporations and core earnings from the division in the three months to September were up 15 percent.

It has obviously outperformed all the other UK enterprise businesses including Logica and Cable & Wireless Worldwide , Will Draper at Espirito Santo told Reuters. The strength at the group is all in Global Services.

BT shares were up 3.26 percent at 193.5 pence at 8:31 a.m. in a slightly weaker broad market.

Core earnings at the Retail division were up 7 percent on a strong demand for broadband. It added 166,000 retail customers, up 46 percent over last year and representing 63 percent of the net additions in the country on that type of network.

The only slight blip in the results was linked to the group's pensions, which had a deficit calculated on an IAS 19 basis of 2.5 billion pounds net of tax compared with a deficit of 1.4 billion at the end of March.

Overall, BT posted second quarter revenue down 2 percent to 4.89 billion pounds, compared with an analyst forecast of 4.78 billion pounds, and core earnings up 3 percent to 1.5 billion pounds, ahead of a forecast of 1.45 billion pounds, according to Reuters I/B/E/S.

When excluding transit revenues which pass through the business and do not affect profits, revenues were up 0.4 percent in the quarter, meaning it is in line for its full-year target of revenues to be between flat or down 2 percent on that basis.

The earnings per share were up 10 percent on an adjusted basis and the dividend was up 8 percent to 2.6 pence.

They're managing their cash very well, analyst Mike Jeremy at Daniel Stewart told Reuters. The Retail performance is good and it suggests that maybe people are going back to the kind of quality they expect.

In this market they're showing good cash management.

(Editing by Hans-Juergen Peters)