Wednesday, June 13, 2007

After a pay rise of over 40% last year, BT’s chief financial officer, Hanif Lalani, has become one of the very few UK financial directors whose remuneration exceeds £1 million.

Said to be endowed with an ‘enterpreneurial spirit’, Lalani has been a key contributor to BT plc, whose core strategy in recent years has been to reduce its dependence on traditional voice revenues and instead obtain an increasing portion of its turnover from so-called New Wave revenues. At the heart of this strategy is BT Global Services, which has won many significant contracts in the commercial and public sectors, in part through its portrayal as a “momentum story”.

There is, however, increasing disquiet among analysts that the annual growth of the Global Services business has been unimpressive, and that BT has been using prior year adjustments to achieve favourable growth figures, for example in page 24 of http://www.btplc.com/News/ResultsPDF/q307release.pdf .

Take the quarter ended 30th September 2005, for example. At the time, BT said the external revenues of its Global Services division were £1,740m. However, a year later, BT revised this figure downwards to £1,703m. This enabled BT to claim growth of 3.5%, instead of the dismal 1.3% it would have been forced to announce if it hadn’t adjusted the prior year’s figures.

BT has made a habit of adjusting the previous year’s revenue figure every quarter. Only once in the past year has BT adjusted the figure upwards rather than downwards, and then it was by a tiny amount.

BT does not provide a justification for these prior year adjustments in its quarterly reports, but there can be no doubt that it is using these adjustments to make anaemic growth figures look acceptable. It could be an opportune moment for City analysts to ask Lalani some searching questions.