Page last updated at 10:17 GMT, Thursday, 12 November 2009

BT pension deficit rises sharply

BT logo at the firm's headquarters
BT announced major job cuts back in May

BT has revealed that the deficit of its final-salary pension scheme has more than doubled in the past six months from £4bn to £9.3bn.

The deficit has increased sharply because its assumed cost of providing pensions in the future has risen dramatically under UK accounting rules.

BT's pension update came as it saw its half-year profits almost halve, due in part to the cost of redundancies.

It made a pre-tax profit of £547m in the six months to 30 September.

This is a 45% decline on the £991m profit it reported for the same period a year earlier.

In addition to redundancy costs, the change in how it accounts for its pension deficit also depressed profits.

The firm's half-year revenues were down 1% from a year ago to £10.357bn.

When the cost of redundancies, the pensions change and other one-off factors are pulled out, BT's pre-tax, post-exceptional items profit for the half-year rose 12% to £888m.

BT is now continuing efforts to reduce its pension deficit, paying £525m into the scheme in its current financial year, and the same amount in 2010-11 and 2011-12.

At the end of 2008, current BT staff also agreed to the company's plan to end the final-salary pension scheme to existing workers for pensions earned after 1 April 2009.

However, this has not stopped the cost of the scheme's past obligations ballooning.

'Making progress'

Looking ahead at its future financial performance, BT said its trading conditions were now improving.

It now expects its revenues for the year to 31 March 2010 to decline by between 3% and 4%, better than its previous guidance of a fall of between 4% and 5%.

It also predicts that it will achieve cost cuts of "at least" £1.5bn, better than its previous guidance of more than £1bn.

BT's chief executive Ian Livingston said the firm was making "progress, but there remains a lot more to do".

Analysts said they welcomed the firm's continuing cost cutting, under which the firm is shedding 15,000 jobs, as announced in May.

Most of the jobs are going in its Global Services IT division.

"We have been very strong believers in the ability of current management to strip out costs from the business and they're delivering well ahead of market expectations," said Daiwa analyst Michael Kovacocy.

Shares in BT rose 6.3 pence, or 4.4%, to 148.3p in Thursday morning trading.

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