Preliminary results from BT were out on Thursday and proved to be pretty much in line with (low-ball) expectations. But a couple of points are worth picking up on.
Although there is no official valuation of the pension fund deficit yet beyond the IAS 19 reading, there is an agreement that BT will pay £525m in pretax make-up payments over the next three year.
And here is why.
The IAS 19 net pension position at 31 March 2009 was a deficit of £2.9bn net of tax (£4.0bn gross of tax), compared with a surplus of £2.0bn at 31 March 2008 (£2.8bn gross of tax). The market value of the BT Pension Scheme assets was £29.3bn at 31 March 2009 (31 March 2008: £37.3bn). The value of the BT Pension Scheme liabilities was £33.1bn (31 March 2008: £34.4bn). The IAS 19 position is based on an AA bond rate of 6.85% (31 March 2008: 6.85%) and an inflation rate of 2.9% (31 March 2008: 3.5%).
(The triennial funding valuation will only be announced after further discussions with the Pensions Regulator)
Meanwhile, BT has also provided some further clarity on what has gone wrong at its IT division, Global Services.
And basically it boils down to the fact that Global Services overbid and underestimated the cost of two big contracts, one of which we assume is the disastrous £12.7bn NHS programme to provide every patient in England with an electronic health record.
The remaining contract reviews were completed during the quarter, including the two major contracts that are the subject of ongoing commercial discussions. As a result, the group has recorded a further charge of £1.3bn, of which £1.2bn relates to two major contracts. These charges reflect a more cautious view of the recognition of future cost efficiencies and other changes in underlying assumptions and estimates, particularly in the light of the current economic outlook and events occurring during the year. Around £1.1bn of the total charge relates to contract costs which had been previously capitalised on the balance sheet.
BT holds three big deals worth more than £2bn for the complex NHS programme, which is running at least four years late. The one that it is causing the biggest headache is the new patient administration system and the software needed for patient records, particularly in big acute hospitals.
BT is, of course, not the only company to have been blown up by the NHS upgrade project. It was also partly responsible for the demise of iSoft and some big losses at management consultants Accenture and Fujitsu.
But Thursday’s news once again highlight the dangers of large IT contracts, which nearly always arrive late and over budget.
Related link:
BT faces NHS contract charge – FT