BT to report return to profit and 5,000 extra job cuts

BT is expected to announce that it has returned to the black, after recording its first loss for eight years in 2009, while disclosing that it has cut 5,000 more jobs than expected.

Concerns will remain about the £9bn hole in the telecoms company's pension fund as the regulator continues to investigate its proposal to support the largest private-sector pension plan in the UK.

The company is expected to report annual pre-tax profits of £1bn to £1.1bn, compared with the £134m loss in 2009 made as a result of the dramatic write-down in the value of its IT business, BT Global Services.

The IT unit made wildly overoptimistic projections about the profitability of more than a dozen of its biggest contracts – including its work for the NHS – resulting in a series of profit warnings and causing BT to more than halve its dividend as it was forced into a cash squeeze.

Ian Livingston, BT's chief executive, is also expected to announce alongside the results on Thursday that the company has lost 35,000 jobs over the past two years. BT had originally pledged to make 15,000 redundancies in the year to end April, the same number as the previous year. In total, however, the company is understood to have cut 5,000 more jobs than the City had expected. BT declined to comment.

The company, the UK's ninth largest employer, has been slashing contractors' pay and bringing more jobs in-house to try to reduce costs, and many of the job losses are understood to have been among temporary or agency workers. BT has also been offering staff a series of what it terms "time-out options", including the opportunity to take up to a year off work in return for a 75% pay cut.

The cost-cutting has come as BT tries to get to grips with continued decline in its core residential and business telephony markets, as well as the implosion of BT Global Services, which it had hoped would be an engine for future growth. Since the problems at the unit were uncovered in October 2008, when BT's shares plunged to their lowest level since the firm was privatised by the government of Margaret Thatcher, its senior management team has been replaced and the workforce slashed.

Earlier in the year Hanif Lalani, BT's former finance director who was parachuted in to Global Services to clean up the mess, was replaced by Jeff Kelly, a US citizen with almost 25 years of IT services experience at the technology services firm EDS. Kelly has been given a remit to try to put the company back on a path to growth.

The Global Services fiasco hit at a dire time for BT, which was wrestling with the deficit faced by its pension scheme. In May last year, BT announced plans to pump £525m a year over three years into the scheme. The plan was approved by the scheme's trustees.

But then in February, as BT revealed the results of its triennial funding valuation for the scheme, which showed it was £9bn in the red, the pensions regulator shocked the City by announcing that it had "substantial concerns" with that plan. Neither BT nor the regulator would elaborate.

Pension experts, however, said that the dispute centred on an agreement to extend the company's deficit payments from 10 to 17 years. They pointed out that the regulator would be under pressure to fight BT in order to prevent copycat deals by Britain's 7,000 other final salary schemes, most of which are in deficit.

BT is still waiting for the regulator's final decision but is confident that it will not have to increase its payments into the fund for the current three-year period.

On Thursday, BT will announce the latest IAS19 figures for the fund, which provide an accounting snapshot of the fund at the end of April but have no bearing on the actual cash that must be put into it. The IAS19 estimate is expected to show that the fund is still very firmly in the red.

Source: The Guardian, 9th May, 2010

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