BT Plan Major Restructuring to Manage Slump

BT have called in notable consultants from McKinsey to conduct a review of their businesses in the hopes of saving hundreds of millions of pounds a year.

The company are plotting the major corporate shake-up in an attempt to pull itself out a financial slump and soften the impact of a number of financial missteps in recent years.

The project is being referred to internally as “Project Novator” and the Telegraph understands that that it may include a merger between their global services corporate networking and IT businesses and their business and public-sector divisions.

It’s an effort that’s being pushed by Gavin Patterson, chief executive at BT and Simon Lowth, the chief financial officer. They’re attempting to clear the decks and release some funds before the new chairman Jan du Plessis arrives later in the year, with the duo preparing to propose their sweeping changes to shareholders at the upcoming general meeting in London this week.

Sources who have spoken to the Telegraph indicate that McKinsey are considering whether BT could separate their valuable and profitable UK arm of global services, which manages contracts for the government and British multinationals. By separating the business from their overseas arm, they could sell off their foreign businesses whilst moving towards a merger of global services and businesses and public sector at home.

Despite the success of BT in the UK, some of their overseas operations haven’t been quite as successful. Indeed, BT Italia was recently found to be involved in a complex fraud case, which has triggered an astonishing £530m write-down and is set to deliver a £500m hit to cashflow, which has sent BT shares tumbling to 2013-era levels.

As such, it’s unsurprising that BT are looking to offload the company. At the same time. BT are also attempting to negotiate a solution to their longstanding pension issue. The pensions are currently running at a £7bn deficit and with low interest rates predicted to cause a sharp increase in that number.

Of course, few of these issues directly affect BT customers, but with serious financial issues like those listed above, BT will have to generate income from somewhere. That could mean an increase in service costs for customers or a scaling back in customer service support for those who contact BT.

Returning to pensions, BT have called time on its pension agreement with inions which cost the company £500m a year, and is widely expected to close the final salary scheme for new recruits, which would affect around 33,000 members of staff. They are, however, expected to offer a stake in assets like Openreach to the pension scheme, providing essential security should BT run into financial issues down the line.

From their peak in late 2015, BT stocks are down 40%, so this restricting couldn’t come at much of a better time for the company.