Pension blackhole overshadows BT results
Stronger third-quarter profits at telecoms giant BT were today overshadowed by concerns over its record £9 billion pension deficit as it published the results of its long-awaited evaluation.
Following the news yesterday (12 February 2010), the FTSE 100 group's shares fell over 7% to 121.95p.
Its pension scheme, which has 340,000 members and is the largest in the private sector, currently has three times as many pensioners as employees contributing. It has been in deficit since the 1990s and was closed to new members in 2001.
BT said it had agreed a 17-year recovery plan for the scheme under which it will pay £525 million a year for the first three years, as previously announced. This will then rise to £583 million from 2012 and grow at 3% a year after that.
However, this plan must still be passed by the pension regulator which has indicated it has "substantial concerns with certain features of the agreement".
BT's chief executive Ian Livingston says: "This is a prudent valuation and a recovery plan which re-affirms BT's commitment to meeting its pension obligations.
"The operational improvements we are making in the business are generating sufficient cash flow to support the pension scheme whilst allowing us to pay dividends, invest in the business and reduce debt."
BT had been under pressure to agree the final terms of the funding plan ahead of its 31 March deadline.
Morten Singleton, an analyst at broker Collins Stewart, says: "If we return to bear market sentiment the pension issue could weigh on BT share price recovery, but we continue to believe the real, sustained and positive momentum of the operational recovery is the major story here."
BT says it is "making progress" with its restructuring efforts after its key Global Services division issued two profit warnings last year.
The unit, which is focusing on providing networked IT services to UK businesses and multinationals, has renegotiated contracts and sold off parts of the business in France and Germany.
This improvement helped BT to report a 39% rise in adjusted pre-tax profit of £466 million for the three months to 31 December. However, revenue slipped 4% to £5.2 billion - slightly above of analyst expectations.
Livingston says: "These results show that we are making progress. There is still a lot more to be done but our commitment to improved customer service and cost transformation is starting to deliver results and is freeing up resources to invest in our future."
BT also said it had reduced its net debt by £1 billion to £10.1 billion.
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