BT profit jumps 37%, but pension deficit rises £1bn

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The Independent Online

BT was busy playing down the potential impact of its pensions black hole yesterday as it emerged the telecoms giant's pension fund deficit could have soared to about £2.6bn.

BT was busy playing down the potential impact of its pensions black hole yesterday as it emerged the telecoms giant's pension fund deficit could have soared to about £2.6bn.

In an effort to calm investors' nerves about the shortfall, Ian Livingston, BT's finance director, said the company's actuary had advised it that there was no reason to significantly change the top-up payments it is making. BT has been paying an extra £200m a year into the fund to clear the shortfall after a funding valuation in 1999 unearthed a deficit of almost £1bn.

The increased deficit was flagged as BT unveiled its financial figures for the third quarter to 31 December which revealed a 37 per cent jump in pre-tax profits to £521m on flat sales of about £4.7bn.

"Revenue growth has been challenging," the chief executive, Ben Verwaayen, admitted. Shares in BT closed down 6 per cent at 171.5p, making the stock the second-biggest faller in the FTSE 100 index. But Mr Verwaayen insisted the company's core business had performed well "in what remains a difficult market", noting it had made record broadband sales last month of more than 25,000 a week.

Nevertheless, the pension deficit overshadowed the numbers. BT said its actuary is now carrying out a new funding valuation which is expected to show its pension deficit has risen about £1bn from about £1.6bn in mid-July. The precise figure will not be available until May.

For guidance purposes, however, the actuary has estimated that, based on the accounting standard SSAP 24, the deficit stood at about £1bn to £1.5bn at 31 December, up from a deficit of £200m at 31 March 2000. It cautioned though that the SSAP 24 figure is less conservative than the funding valuation.

Despite the estimated sharp rise, City analysts were not unnerved and said even if BT did need to increase the £200m-a-year top-up payment, the extra cash would come from an expected fall in the company's capital expenditure. BT reported capital expenditure yesterday of about £600m for the quarter and predicted a spend of about £2.6bn for the year – some £200m less than previous guidance.

The most disappointing aspect of the results, analysts said, was the performance of BT's loss-making Ignite division, which sells data services and IT solutions to corporate customers. Ignite's operating losses increased to £90m in the three-month period from a loss of £80m a year before on sales of £1.26bn, down 1 per cent. Revenue from other carriers such as AT&T and Worldcom fell by 23 per cent in the period.

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