BT slides on pension fund fears

Michael Carroll & Robert Clark
12 Feb 2010

BT posted a much-improved Q4 performance Thursday, but its stock price dived after authorities expressed “substantial concerns” over its pension liabilities.

The UK carrier announced a pension fund shortfall of £6.8 billion ($10.7b), or 20% of total fund assets.

It stock on the London Stock Exchange closed 8.45% lower at 120.30p.

BT said pension scheme liabilities had increased by £9.4 billion in the nine months to December 31 because of lower bond yields and expectations of a rise in inflation.

It revealed that the UK Pensions Regulator had “substantial concerns with certain features” of the agreement between the company and the pension fund trustee over the valuation of the scheme.

“BT and the trustee will continue to work with the Pensions Regulator to help them complete their detailed review,” BT said.

Announcing the Q4 result, BT CEO Ian Livingstone said the recovery was still a work in progress.

The compared boosted quarterly earnings almost threefold to £178 million, despite a 4% fall in sales. Operating profit was up from £209 million a year earlier to £473 million, and net income was £178 million, up from £62 million.

The troubled Global Services unit posted ebitda of £123 million – up from £28 million in the September quarter and £7 million in 2008.

Livingstone said he was pleased with the firm’s progress, particularly in the area of cost reduction, which resulted in it trimming £1.6 billion from outgoings in the nine months to December 31.

The savings would help the carrier roll out fiber networks required to offer next-generation broadband services, he said.

The carrier also lowered capital expenditure by £208 million year-on-year to £554 million for the quarter, but predicts the figure will be up in coming quarter, leaving the full-year 2009 spend at £2.5 billion – down slightly from its previous forecast of £2.6 billion.

“These results show that we are making progress,” Livingstone states, adding. “There is still a lot more to be done but our commitment to improved customer service and cost transformation is starting to deliver results.”

Based on the latest quarterly figures, the firm predicts it will achieve full-year ebitda of £5.7 billion. Free cash flow is tipped to reach £1.7 billion, not counting a pension deficit payment of £525 million.

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