UPDATE 1-BT reiterates 1 bln stg cost saving target

* Aims to increase free cash flow by more than one third

* Says operational targets will allow dividend to grow

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LONDON, July 15 (Reuters) - BT (BT.L) said on Wednesday it expected to meet its target of delivering more than 1 billion pounds ($1.6 billion) of cost savings in the current financial year, and was aiming to increase free cash flow by more than a third.

Chairman Michael Rake told shareholders at the British telecoms carrier's AGM in London that the unacceptable performance of the group's Global Services unit had prompted substantial changes, and improving the division, which supplies IT services to multinationals, was a key priority.

"We believe that operational improvements in the business will generate sufficient cash flow to allow the dividend to grow at the same time as we invest in the business, reduce debt and support the pension scheme," he said.

Shares in BT were down 1.1 percent at 103.85 pence at 1035 GMT, underperforming the British index of leading shares .FTSE, which was up 1.6 percent.