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Bt Pension Debt Swells By £3bn As Profits Fall

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http://business.timesonline.co.uk/tol/busi...icle6732840.ece

BT today revealed that a black hole in its pension fund grew by a further £3 billion over the first quarter, after the struggling telecoms group was forced to make more conservative assumptions about the scheme’s financing.

The dramatic rise in the deficit emerged as the telecoms carrier said profits in the three months to June slumped by 45 per cent to £272 million.

In a results statement, released this morning, BT said that its pension deficit was now £5.8 billion, compared to £2.9 billion in March, even though the value of shares and other investments held by the fund actually rose.

The sudden deterioration was instead caused by BT having to adjust for a higher inflation rate, or 3.25 per cent instead of 2.9 per cent, and a lower discount rate, which is the figure used to calculate the scheme's liabilities for accounting purposes.

The 45 per cent decline in profits over the first quarter was mainly due to the phone giant's struggling Global Services unit which fell into the red in the three months to June.

Global Services, which provides telephone and IT services to large organisations, lost £124 million in the period, compared to a £1 million profit in the same period a year ago.

Global Services revenue fell 4 per cent to £2.07 billion because of the impact of "lower call volumes" in both the UK and Europe, as cash-strapped businesses contend with the economic impact of the downturn and cut back on telecoms spending to save money.

Operating costs rose by 11 per cent, to £2.01 billion as BT was not able to allocate so much of the expense that stemmed from contracts recently won to its capital budget.

In May, BT announced a restructuring and new cost savings targets as it cut its dividend and announced 15,000 job cuts after two profit warnings at Global Services.

Overall, group revenues were ahead 1 per cent to £5.2 billion, but was the result of favourable currency movements.

Revenue would have been down 3 per cent, and BT repeated its full year guidance of a revenue decline of 4 to 5 per cent.

At BT's other divisions, progress was more steady.

Cost-cutting ensured that its consumer-facing Retail division saw profits improve to £359 million from £277 million.

Its Wholesale unit, which provides connections for rival phone companies, posted operating income off just £5 million at £149 million, and there was a similar decline at its Openreach division, which supplies the copper wires leading into homes, where income was £302 million.

The company does not pay a first quarterly dividend.

Another pension story.

http://www.guardian.co.uk/business/2009/fe...lan-nationalise

Sunday 15 February 2009

The government is believed to have drawn up a contingency plan that would involve the wholesale renationalisation of BT, should the company get into financial difficulty, because of the public purse's exposure to the telecom giant's mammoth pension scheme.

Government advisers believe a wholesale takeover of BT, after 25 years as a quoted company, would be a more efficient use of public funds than supporting a refinancing or third-party buyout, because the government has guaranteed the payouts of 262,000 BT pensioners whose employment started when the company was state-owned.

The controversial crown pensions guarantee will come under the spotlight in May when BT unveils the extent of the deficit in its £33bn final salary pension fund, the largest private sector fund in the UK. At its last triennial valuation in 2006, the fund was £3.4bn in the red. Since then hundreds of billions of pounds have been wiped off the value of investments and the deficit is likely to be many times larger.

BT is expected to have to greatly increase the £280m a year it has been pumping into the pot, draining its cash resources at a time when its corporate IT business, BT Global Services, has failed to deliver on expectations, and its retail operation is squeezed by economic conditions.

Shares in BT plunged last week as it announced an 81% drop in third-quarter profits, amid fears it is becoming cash-constrained and will have to cut its dividend. BT is now valued at £7.6bn, less than a quarter of its pensions liability.

The guarantee was put in place when BT was floated in 1984. In the event of a collapse, it effectively leaves the government responsible for ensuring the pension payouts of everyone who worked for BT when it was state-owned.

Though there is no imminent threat to BT's finances, the speed with which the banking sector collapsed has led the government to draw up 'doomsday' plans to support other privatised companies in critical sectors such as energy and water. But it has decided that supporting a privately owned BT, when the public purse would be open to its pensioners, makes no sense. Instead it would buy BT outright.

So at what point do we get BT back????

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I remember reading a story in the Guardian in April that taking BT BACK into State ownership was thought to be the cheapest way of sorting its "Black Hole".

Frankly as an EX BT worker ( i did 2 years in the mid to late 1980's) i owe them a great deal of thanks. After we parted company i demanded my pension divs back & only got a fraction of what i paid. After one hell of a row they gave up a bit more............then "Explained" to me that persions was mostly about charges.

I then sussed:-

1. That if you in a company or private plan , you get ripped off.

2. By the time i came to claim it it would be worth ZIP anyway.

I started MY OWN version, which has worked out vastly better so far!

Mike

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I suspect BT often gets far too lucrative contracts from government and that the BT tax hasn’t been abolished so as to keep the pensioners of BT going.

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its actually far far far worse than this , by using a rational pricing methodology in line with where Index linked annuities are priced by life companies selling them you actually get closer to a 30 billion figure just for BT , however their actuaries allow them to make a nice high assumption around what their investments will return and price using corporate bonds which are far from risk free rather than using IL gilts

The whole of the FTSE has the same issue and nobody will own up to it , basically UK stocks with db schemes are a massive ponzi ..

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its actually far far far worse than this , by using a rational pricing methodology in line with where Index linked annuities are priced by life companies selling them you actually get closer to a 30 billion figure just for BT , however their actuaries allow them to make a nice high assumption around what their investments will return and price using corporate bonds which are far from risk free rather than using IL gilts

The whole of the FTSE has the same issue and nobody will own up to it , basically UK stocks with db schemes are a massive ponzi ..

Fortunately for BT, their fund is able to be bailed out by the tax payer.

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BT,like BA ,is a massive pension deficit with a company tacked on.

the pensions crisis is the new elephant in the room.jsut wait till the baby elephant-commercial real estate-gets a cold and infects the herd.

Pension Flu you mean?

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BT,like BA ,is a massive pension deficit with a company tacked on.

the pensions crisis is the new elephant in the room.jsut wait till the baby elephant-commercial real estate-gets a cold and infects the herd.

So it's basically the GM business model then?

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and BA are only up 0.15%....? Obviously BT's pension fund posted some reassuring results.BA pension fund conducting business as normal.

Of course having a pension hole increase by £3bn in just 3 months can only be a positive, unless of course they are now seeing share prices increasing therefore this hole has just got smaller?

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Which is broadly a way of saying that BT's managers under the chief executive Ian Livingston are not any longer working first and foremost for the company's shareholders, but that their more important and burdensome obligation is to the pension fund.

As a start, BT in May agreed with the regulator that it would put £525m each year into the scheme for the next three years - consuming half of all the cash generated by the business.

What it's now negotiating is the contributions for succeeding years. And there is little reason to believe that these substantial payments will fall for almost as far as the eye can see.

Arguably, in an economic sense, BT's current and future pensioners own this totemic business.

Peston's take

http://www.bbc.co.uk/blogs/thereporters/ro...nsion_hole.html

This of course will also further decrease Gordons corporation tax because every pound paid into the pension fund is offset against profits. It seems BT will be forced to put much of its profits tax free into the fund.

If this is repeated across the FTSE 100 pension funds the CT hit could be pretty dramatic.

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http://business.timesonline.co.uk/tol/busi...icle6732840.ece

Another pension story.

http://www.guardian.co.uk/business/2009/fe...lan-nationalise

Sunday 15 February 2009

So at what point do we get BT back????

I just sit here and can't believe how badly this business has been run, they should have had ultra reliable earnings and growing earnings from their UK businesses and been able to use these to invest in growing markets.... the profit performance is truly appalling.... as for the pension... its a red herring.... of course its going to look underfunded in the midst fo a stock and asset price decline.... what should be of greater concern is that when the govt breaks up national monopolies like this they factor in an automatic pension crisis as the companies job count potentially falls while its claimant count rises... thats the crux of the problem .

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