Pension woes weigh on BT as telco dials up profit rise
Actuary underestimates pension deficit by £500m But latest sales numbers are better than expectations
Telecoms giant BT yesterday unveiled better-than-expected sales figures but admitted that its pension deficit had been underestimated to the tune of £500 million.
For the quarter ended 30 June, revenues came in at £5.72 billion. Although this was down 2 per cent from £5.83bn a year earlier, it beat analysts’ expectations of £5.7bn, while adjusted pre-tax profits rose 3 per cent to £816 million.
To help plug its pension deficit, the group has issued £2bn in bonds. The pension woes have been compounded by the fact that BT’S independent actuary, Willis Towers Watson, miscalculated its pension liabilities and underestimated the scheme’s deficit by £500m. The restated pension deficit stood at £3.9bn as of the end of June.
BT’S chief executive, Gavin Patterson, will step down this year due to disappointment over the company’s performance. When the move was announced, chairman Jan du Plessis said Patterson had the backing of the board, but that the “broader reaction” to his work meant new leadership was required.
Patterson said yesterday: “We’ve made a good start to the year. We are making positive progress against our evolved strategy. Our customer experience metrics continue to improve, and we have seen the successful launch of new, converged products including BT Plus, our first consumer converged offering, and 4G Assure, for business consumers.”
Sales in BT’S consumer division were up 2 per cent to £2.59bn, but Openreach’s sales slipped 2 per cent to £1.21bn.
Revenues also dropped in BT’S wholesale arm, down from £497m to £459m.
Laith Khalaf, senior analyst at investment group Hargreaves Lansdown, said BT’S consumer business was “keeping the whole ship moving forward at the moment”.
He noted: “Regulatory pressures are hitting Openreach, and BT’S revenues from business and the public sector are in decline. Overall profits are up this quarter, but times are still tough for the UK telecoms provider.
“The pension scheme is taking up significant cash, with £2bn gobbled up in this quarter and a further £1.25bn to come in the next year, to go towards plugging the pension black hole.
“On that front BT says its independent actuaries miscalculated the pension scheme liabilities in March, understating the accounting deficit by £500m.
“The accounting deficit tells us more about bond yields than it does pension obligations, and has no effect on cash flows, but clearly this slip doesn’t exactly help to inspire confidence. BT is banging up against the side of the fish tank when it comes to its broadband penetration,” he added.
sreid@scotsman.com