BT Group has revealed its pension fund deficit doubled to almost £6bn in the three months to June, although there was some good news for the beleaguered telecoms giant as it posted better than expected results.
The telecoms group said yesterday its pension deficit had risen from £2.9bn at the end of March to £5.8bn – or £8bn gross of tax. The deterioration of the fund's deficit was due to the higher inflation rate, which more than offset the asset value increase of £1.1bn, BT said.
A spokesman for the group said the figure was a "highly volatile point in time," and it "does not reflect the long term nature of pensions". He added: "This volatility is demonstrated by the fact that the position has improved by more than £1bn since the end of June and was in surplus just last year."
Tom Gidley-Kitchin,a telecoms analyst at Collins Stewart, said: "The pension fund deficit looks to be a little worse than some expectations."
BT has agreed with the pensions regulator and the trustees to pay £525m into the fund for the next three years. The group remains in talks with the regulator over the triennial review of its pension scheme, which could see the deficit rise. Earlier this year, independent consultant John Ralfe said the figure could be as high as £11bn.
BT yesterday posted results for its first financial quarter, showing a 1 per cent rise in revenues to £5.2bn. Pre-tax profits dropped 45 per cent, falling from £497m in the three months to June 2008, to £272m this year.
Mr Gidley-Kitchin said the results were "a little ahead of expectations" adding there were "no unpleasant surprises". Investors were buoyed and shares in BT soared to the top of the FTSE 100 in yesterday's trading, closing 12.6 per cent up at 126.9p
BT's chief executive, Ian Livingston, said: "We have made a solid start to the year against a background of challenging trading conditions. We are on track to deliver reductions in operating costs and capital expenditure of well over £1bn and to generate group free cash flow of over £1bn this year."
In May, BT revealed that an "unacceptable" performance at its global services division had dragged the company into a full-year loss from profits of £1.9bn the previous year. The group also announced plans to cut 15,000 jobs, the same amount as the previous financial year. Mr Livingston was more positive over the stricken global services division yesterday, which fell to a £124m loss in the first quarter. He said it was "making progress although there is still much to do. The rest of the group continues to perform well".
Mr Gidley-Kitchin said: "BT believes it is too soon to start providing a target for the division to go cash flow positive, but it can see what needs to be done and is moving in the right direction.
"It was only after the first quarter last year that the problems in global services became apparent to the wider world," he added.