Pay Strike Threat As BT Delivers £714 Million Profit

Ben Verwaayen delivered a pledge of further cost cuts and sales growth yesterday as he signed off after six years as head of BT. The outgoing chief executive announced a 2 per cent rise in revenue for the fourth quarter, which most analysts had expected to be flat and pre-tax profits were up 3 per cent to £714 million.

This sent shares up 5.5 per cent to 235¼p, leaving them just under 1p lower than the share price on the day Mr Verwaayen took over. The full-year dividend was raised 5 per cent to 15.8p but pretax profits for the 12 months to the end of March virtually flat at £2.63 billion against £2.64 billion in 2007.

Mr Verwaayen’s departure was marred by a threat of industrial action in customer service sectors as members of Connect, the union representing 14,000 BT managers and professionals, rejected the company’s pay offer. It is threatening to take action before the end of the month. A Connect spokesman said: “We have serious concerns about the distribution of pay. There are managers being paid less than their workers and we’re not satisfied that the increase deals with the male and female pay gap.”

Mr Verwaayen promised £700 million of savings in 2008-09 through “cost efficiencies”. Ian Livingston, who steps up to the job at the end of the month, said that some of the cost-cuts had been achieved by job losses in the wholesale business, but Mr Livingston, the head of BT Retail, is expected to tighten the group’s belt further. He did not talk of more redfudancies but said that cost reductions could be achieved in “lots of ways”. The company would redeploy staff, such as moving wholesale staff to regional call centres.

Mr Verwaayen, who joined BT in February 2002 from Lucent, said he was leaving the group with mixed emotions. “I feel a sadness to let it go. It’s been a great story. You build part of the story and then you have to let it go.”

The outgoing chief executive is credited with turning around the company, moving it away from voice calls towards broadband and global IT services. Revenue from its traditional business fell 2 per cent but so-called new wave revenues from broadband and corporate IT contracts were up 9 per cent at £2.3 billion and account for more than 40 per cent of group revenues. However, fierce competition threatens to take its toll of the group.

On the whole analysts were kind to the departing chief executive’s legacy at BT. Analysts at Nomura, Investec and Collins Stewart reiterated “buy” ratings, while Citigroup analysts recommended “buy” at medium risk.

But there are detractors. In a recent research note Robin Bienenstock, of Bernstein Research, said: “We believe that BT is in a strategic checkmate, with a fundamentally flawed core business, a heavy balance sheet and onerous capex obligations.”

Mike Cansfield, principal analyst at Forrester, said: “The issue for BT is how much its top line can grow. Two per cent growth is not significant. The challenge for Ian Livingston is how to get top line revenue to grow.”

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