BT is to axe about 13,000 jobs over the next three years and move out of its central London headquarters after almost 150 years, as it seeks to cut £1.5bn in costs after a torrid 18 months.
The telecoms company said the job losses would come mainly from back office and middle-management roles. About two-thirds of the job cuts will fall on its UK workforce of about 83,000, with the remainder coming from the 23,000 staff it employs internationally.
BT is also moving out of its central London headquarters in St Paul’s, where it has been headquartered since 1874 when the group was known as the General Post Office, as part of a wide-ranging restructuring.
“This is probably the most significant transformation we have made in the last 10 years,” said Gavin Patterson, the chief executive of BT. “We need to do this to be competitive in the future. If we are compared with our peers we are frankly too complex and overweight. While I recognise the pain, ultimately it is the right thing to do for the business.”
The group also said it would be hiring about 6,000 new staff, primarily in customer service and engineering.
BT’s standalone subsidiary Openreach, which is responsible for building and managing most of the UK’s broadband infrastructure, has already announced 3,500 of the new jobs. It is looking to hire engineers this year as part of a plan to speed up the rollout of fibre broadband and eliminate “not-spots” in cities and suburban areas.
The job cuts, which amount to about 13% of BT’s total global workforce, mean the company will ultimately be cutting about 17,000 jobs over a four-year period. Last May, it cut 4,000 jobs, with about half coming from the UK, to save £300m over two years.
BT said the move out of St Paul’s formed part of a plan to cut the number of locations it owns across the UK. Patterson said that about 80% of its staff were based in around 50 offices across the UK. That number will be cut to 30 “modern, strategic sites to create a more collaborative, open and customer-focused working culture”.
“In many cities we have multiple offices, it is about consolidating in key towns,” said Patterson. “We will certainly have a headquarters in London; this is not BT moving out of London. It is more likely to be in a smaller, future-oriented working environment.”
The company said it is looking at “all options” for the future of the St Paul’s site. It would not comment on the value of the property, which has a varied history including being damaged in the first and second world wars.
Prospect, the union representing 140,000 public and private sector workers such as engineers and managers said the larger-than-expected cuts would be a “devastating blow” to its members and sounded “unrealistic”.
“Decisions like this are not easy to make,” said Patterson. “And I recognise it is going to affect a lot of people.”
The large-scale redundancies are the biggest since 2008 and 2009 when 30,000 jobs went, largely as a result of the poor performance of its global services division.
BT’s share price fell as much as 8% in early trading, reflecting concern from investors at the group’s forecast of lower revenue and profits this year. BT reported profits of £7.5bn, down 2%, with revenue down 1% to £23bn in the year to the end of March.
Patterson, who has endured a torrid 18 months including an accounting scandal at BT’s Italian unit that cost £530m to clean up, said the company had “proved its mettle” over the last year.
He said successes included closing the final salary pension scheme and agreeing a multibillion-pound deficit recovery plan, legally separating Openreach and striking a new Premier League rights deal at £295m a season, saving £25m annually ending years of spiralling inflation.
Patterson also announced an increase of about £200m in capital expenditure to £3.7bn in each of the next two years, to drive the rollout of superfast broadband and 5G mobile networks.
BT said it would hold the dividend unchanged for last year and the next two years, given the outlook for earnings and cashflow, but added that it remained committed to a long-term policy of growing the dividend.
The company also agreed a 13-year plan to reduce its pension deficit, which stands at £11.3bn, including payments of £2.1bn over three years and a further £2bn to be raised from a bond issue.
Patterson said that BT would also look at the sale of non-core assets and that its under-performing global services operation, which provides IT and communications services to clients ranging from the BBC to Bromley council, would be streamlined.
BT is the exception as FTSE 350 firms reduce pension deficits
BT’s pension travails aside, Britain’s biggest companies have recently enjoyed a decent run on final salary schemes. Buoyant stock markets, especially on the continent and in the US, and a rise in the interest rate paid on government bonds, which form the backbone of every pension scheme, have tended to bring final salary scheme deficits down.
According to Mercer, a leading pensions consultancy, deficits at firms listed on the FTSE 350 fell to £76bn at the end of last year, from £84bn the year before. Rival pension consultancy Hymans Robertson, which produces more conservative estimates, said deficits across the FTSE 350 stood at about £100bn.
Both figures are well down on the £137bn collective deficit seen at the end of 2016 by Mercer’s calculations, illustrating how an unusual rise in both stock and bond markets last year improved pension scheme finances.
Still, the improvement has a long way to go before falling back to the £18.2bn FTSE 350 deficit estimated by Goldman Sachs in 2014.
It was only last year that BT said its deficit was £13.9bn, double the previous year’s total. Since then it has fallen to nearer £9bn, partly because it decided BT pensioners would die a little earlier than expected, saving about £1bn, only to rise again to £11.3bn. Pension schemes forecast their liabilities over a 50-year period and changes in inflation, interest rates, investment returns and life expectancy can all alter the trajectory.
The rise in long-term interest rates calculated by BT’s pension trustees may be a canary for other schemes and herald another rise in deficits across the board.
Philip Inman