[Matterhorn]

seeing as I have been pulled on the strength of BT as a company on here by the usual suspects I thought it would be ok to post this here. Lack of financial strength will ultimately affect all BT products, Vision included.

sometimes days like this just fall into your lap..!

http://www.bbc.co.uk/blogs/thereport...sion_hole.html



BT seems to me to have been a bit disingenuous this morning in the way it has presented its first quarter results.

The impression it creates is of steady-as-she goes in its retail and wholesale broadband and telephony businesses. And that the troubled global services divisions - which provides services to big institutions - is now looking sick rather than a basket case.

Which is presumably why its share price bounced an impressive 11% this morning.



So it comes as something of a surprise to discover, buried in a note some way into the press release, that at the end of June its net liabilities exceeded its net assets by a substantial £3.2bn.

Now I can't remember the last time that a putative blue chip like BT, a semi-utility that's supposed to generate buckets of cash, had a net deficit on its balance sheet.

This is a non-trivial occurrence.

Intriguingly, BT insists that:

"this does not affect the distributable reserves and dividend paying capacity of BT group plc, the parent company".
Which is a bit odd - in that some might argue that the prudent course would be to strengthen the balance sheet by conserving cash and abandoning the dividend (which was slashed 59% only 10 weeks ago).

So what's created this hole?

Well the deficit before tax in its pension fund has doubled from £4bn to £8bn in just three months.

And, under legislation passed by this government, this is an unavoidable debt.

To put this £8bn chasm in its pension-scheme into an appropriate context, the entire market value of the company is less than £10bn.

The cause of the huge increase in this debt is not a collapse in the value of the pension scheme's assets. In fact these have risen 3.8% to £30.4bn.

What's ballooned are the liabilities, from £33.1bn to £38.3bn.

And some will say that BT has been hoist on its own petard - in that pensions analysts such as John Ralfe have been arguing that for months the company has been understating the size of its pension liabilities through the so-called discount rate it uses.

Explaining this is a bit complicated, so please bear with me.

The way that any pension fund values its liabilities is to evaluate the numbers of people in its scheme and how long the current and future pensioners are likely to live.

Then it adds together the payments it is likely to have to make to those current and future pensioners over the many decades till the last pensioner is dead.

And then the fund calculates the present-day value of all those payments, in order to ascertain the value of the assets it should be holding today such that it can be confident of paying out all those pensions over all those years.

Now this is the tricky bit.

Under accounting rules, what's known as IAS 19, a pension fund "discounts" those future payments - or puts them into today's money - at the prevailing rate of interest on high quality corporate bonds.

Perhaps the best way to think of this is that the fund is assuming that its assets - its investments - will increase in value at the rate of interest paid by big sound companies for borrowing from investors.

And the important point to grasp is that the higher the yield on corporate bonds (or the higher the rate of interest that companies have to pay to borrow) the lower the current value of a pension fund's liabilities.

So BT's pension fund looks in much better shape when big companies are paying much more to borrow.

Here comes the paradox.

Because of the credit crunch, this corporate bond yield surged to a record 7.72% last October. And the yield increased simply because investors took fright and didn't want to lend to companies.

So the credit crunch - which has been doing so much damage to the health of businesses - created the illusion that weak pension funds, like BT's, were in better shape than was actually the case.

The point is that corporate bond yields were temporarily inflated and distorted by panic in the markets: that 7.72 rate of return wasn't remotely a return that any fund should have expected to earn over the decades to come; it was an unrealistic discount rate.

Now as economies have started to show signs of recovery, investors have become less reluctant to lend to companies.

So the yield on corporate bonds - and the relevant yield for BT is AA-rate corporate bonds - has fallen.

Since March, the yield on AA corporate bonds has fallen from 6.85% to 6.2%.

Hey presto: the economic outlook looks less bleak; the price of credit for companies has fallen; but the value of pension fund liabilities at BT has gone through the roof.

Ouch.

What's worse, the pension regulator thinks that BT is still not using prudent enough assumptions in measuring its pension-fund hole.

It doesn't like the use of the AA corporate bond yield to measure liabilities and - as part of the rigorous three-yearly actuarial evaluation that all schemes have to go throw - the regulator has asked an outside expert to advise on what a sounder discount rate would be.

Ralfe believes the deficit on more sensible conservative assumptions would be about £11bn, more than BT's stock-market value.

And if BT were forced to value its pension liabilities on the basis of the yield on gilts - which is how schemes are valued when companies want to get shot of them to an outside insurer - well then the deficit would be well over £20bn.

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.

[scotty2808]

Thanks for the update on BTV.

[Matterhorn]

Quote:

Originally Posted by scotty2808

Thanks for the update on BTV.

no problem.

[paulpocket]

Matterhorn, do you have BTV?
Did BT wrong you in a past life?

Not getting on at you but......... every one of your posts seems to be about how they are in trouble. Aye ok, we get the point. We got it a while back tbh.

Maybe you could give us a few weeks off with the "BT in financial trouble" posts?

[Matterhorn]

Quote:

Originally Posted by paulpocket

Matterhorn, do you have BTV?
Did BT wrong you in a past life?

Not getting on at you but......... every one of your posts seems to be about how they are in trouble. Aye ok, we get the point. We got it a while back tbh.

Maybe you could give us a few weeks off with the "BT in financial trouble" posts?

Yes I have BTV

BT haven't wronged me anymore than they do all the other customers they have.

Fair point....

BT's finances have been done to death in other threads and this was mainly addressed to the contributors to those threads who contended (amongst other things) that running a company in debt was a good thing and that the pension fund deficit was due to the overall market being down. Both of which are now and were then...rubbish.

I quoted from the balance sheet but I was wrong...

those concerned know who they are.... you can spot them spouting similar bunkum in lots of other threads.

[samsung07]

Quote:

Originally Posted by Matterhorn

Yes I have BTV

BT haven't wronged me anymore than they do all the other customers they have.

Fair point....

BT's finances have been done to death in other threads and this was mainly addressed to the contributors to those threads who contended (amongst other things) that running a company in debt was a good thing and that the pension fund deficit was due to the overall market being down. Both of which are now and were then...rubbish.

I quoted from the balance sheet but I was wrong...

those concerned know who they are.... you can spot them spouting similar bunkum in lots of other threads.

Seems your the only one thinking that these are bad results as the stockmarket seem rather taken by them including the little element of the £1Bn of free cash flow etc.

Last time the shares were up 14% on todays qtr results so perhaps they know something you don't , then agsin that wouldn't be hard with your Key stage 1 grasp of reality.

[spaceman05]

somehow when i read on teletext bt`s results i knew there would be a thread started in here by urself gloating, so congratulations u seem to be right on certain things, but still dont mean that bt are in any kind of trouble, i read an interesting article on your favourite subject today, at there last set of results the giant that is sky posted negative results, and it is only the recession and people staying at home more that have turned around there fortunes, so not all is as sosy with sky as you make out, maybe now though that you have got this thread you will stop hijacking all the other threads and going on about how bt are gonna go belly up anytime soon

[spaceman05]

Quote:

Originally Posted by Matterhorn

Yes I have BTV

BT haven't wronged me anymore than they do all the other customers they have.

Fair point....

BT's finances have been done to death in other threads and this was mainly addressed to the contributors to those threads who contended (amongst other things) that running a company in debt was a good thing and that the pension fund deficit was due to the overall market being down. Both of which are now and were then...rubbish.

I quoted from the balance sheet but I was wrong...

those concerned know who they are.... you can spot them spouting similar bunkum in lots of other threads.;)

yeah normally right after u have hijacked a thread with stories of bt going bust, even if the op of the thread just asks a simple question, like how do i turn the box on

[wwwebber]

The tide of opinion is obvious here. You certainly dont do yourself any favours here Matterhorn.

[stuntmaster]

its a case of he wants everyone to think bt are in trouble as he wants everyone to hate TUTV. so freeview becomes free and he signs them up to sky.n must be a sky salesperson you get in the lobby to tescos that harrasses you when you wanted SD and they try to sell you HD.

[Matterhorn]

Quote:

Originally Posted by stuntmaster

its a case of he wants everyone to think bt are in trouble as he wants everyone to hate TUTV. so freeview becomes free and he signs them up to sky.n must be a sky salesperson you get in the lobby to tescos that harrasses you when you wanted SD and they try to sell you HD.

inglis?

[mattster1]

don't feed the troll :yawn:

[Matterhorn]

Quote:

Originally Posted by mattster1

don't feed the troll :yawn:

truth hurts..

oh and you should change your profile description..

[nemulate]

Can't we get him banned? Perhaps we can all click on the report post button? Matterhorn we know you don't like BT just go and play somewhere else please!!!!!

[stuntmaster]

Quote:

Originally Posted by nemulate

Can't we get him banned? Perhaps we can all click on the report post button? Matterhorn we know you don't like BT just go and play somewhere else please!!!!!

yes, if we all click the alert button, won't stop him tho.

he'll just make another alias.

since matterhorn = archie, who also used to hate bt vision.

[stripedcat]

So much for privatisation!

[wwwebber]

Quote:

Originally Posted by stripedcat

So much for privatisation!

Very unhelpful comment - where were you when they were raking in billions for the shareholders eh ?

[wwwebber]

Quote:

Originally Posted by stuntmaster

yes, if we all click the alert button, won't stop him tho.

he'll just make another alias.

since matterhorn = archie, who also used to hate bt vision.

Yeah - he's done it a few times. It's only a matter of time before the Matterhorn ID goes the way of the Dodo too. You see - he just cant help himself.

[mattster1]

Quote:

Originally Posted by Matterhorn

truth hurts..

oh and you should change your profile description..

truth hurts? look up troll on the web and you will see you fit the description perfectly. this is a forum for bt vision not bt as a company and you seem intent on winding up people on here. if sky is so great how do you get any time to post on here?

[MrGiles2]

I think its fantastic news that BT are losing money.

Hooray!!!

I loathe BT cos they played a rotten trick on me a few years back and I never forgave them. So when Comcast came along, I signed up pretty quick, and then of course, Comcast became NTL, then Virginmedia and I am still with them!!

Trouble with BT is they are very anti competitive cos they have far too many shareholders lining their pockets with other people's money, and draining the pension funds as well.

I never had much time for Margaret Thatcher, but she did open up the Communications market, and now we have a very wide choice available for Phone, Broadband, TV (YES Hooray to Virginmedia for adding more HD Channels to compete with Sky).

Good riddance to BT!!!

[iniltous]

Quote:

Originally Posted by MrGiles2

I think its fantastic news that BT are losing money.

Hooray!!!

I loathe BT cos they played a rotten trick on me a few years back and I never forgave them. So when Comcast came along, I signed up pretty quick, and then of course, Comcast became NTL, then Virginmedia and I am still with them!!

Trouble with BT is they are very anti competitive cos they have far too many shareholders lining their pockets with other people's money, and draining the pension funds as well.

I never had much time for Margaret Thatcher, but she did open up the Communications market, and now we have a very wide choice available for Phone, Broadband, TV (YES Hooray to Virginmedia for adding more HD Channels to compete with Sky).

Good riddance to BT!!!

If you are still using VM for your telephony you may be
getting a 'glow' from not putting any of your money into BT
coffers but you certainly are not getting a competitive deal
on the price of your calls

[wwwebber]

Quote:

Originally Posted by MrGiles2

I think its fantastic news that BT are losing money.

Hooray!!!

I loathe BT cos they played a rotten trick on me a few years back and I never forgave them. So when Comcast came along, I signed up pretty quick, and then of course, Comcast became NTL, then Virginmedia and I am still with them!!

Trouble with BT is they are very anti competitive cos they have far too many shareholders lining their pockets with other people's money, and draining the pension funds as well.

I never had much time for Margaret Thatcher, but she did open up the Communications market, and now we have a very wide choice available for Phone, Broadband, TV (YES Hooray to Virginmedia for adding more HD Channels to compete with Sky).

Good riddance to BT!!!

ok, so you you like seeing thousands of people dumped on the dole queue just because BT let YOU down.

Stupid attitude.

Dear me these forums so called are getting worse
more like personel attacks on people..

[lowebb]

Quote:

Originally Posted by wwwebber

ok, so you you like seeing thousands of people dumped on the dole queue just because BT let YOU down.

Stupid attitude.

Where you attitude proclaiming BT as our saviour will ulitmately make BT a better company?

He didnt say anything about firing workers, BT are losing money because they are badly run, hence reform is required.

[wwwebber]

Quote:

Originally Posted by lowebb

He didnt say anything about firing workers, BT are losing money because they are badly run, hence reform is required.

No he didnt specifically say anything about sacking workers but when a company loses money then people tend to lose thier jobs - a fact that this poster seems to have overlooked.