BT dialled up all the wrong numbers for its investors yesterday, sending its shares down 12 per cent.

The company’s worst stock price fall in eight years ensured that Ian Livingston, the new chief executive, endured a baptism of fire as he presented the company’s results.

He revealed that pretax profits fell 7 per cent from £658 million in the first quarter of last year to £613 million from April to June 30 this year. Revenue rose by only 3 per cent to £5.1 billion.

Investors were also spooked by a dramatic drop in first-quarter cashflow, from an inflow of £1.4 billion in the fourth quarter last year to an outflow of £734 million, more than double analysts’ estimates. The giant telecoms group revealed reduced margins in its IT services division and said that its pension fund had slid into the red.

Jittery telecoms investors, on edge after Vodafone’s recent sales warning, punished BT. The shares, supposedly one of the stock market’s safer bets, closed down 23.7p, or 11.99 per cent, at 173.9p, their lowest level in four years.

Although revenues at BT Global Service’s division, which manages company computer systems, were up 13 per cent at just over £2 billion, analysts highlighted what appeared to be a reversal in fortunes for the division. BT has repeatedly promised that it can achieve a medium term target of 15 per cent margin in this business. But yesterday’s results showed the margin had fallen to 9.5 per cent in the first quarter from 9.8 per cent last year.

Mr Livingston said that he was sticking by the 15 per cent target, reiterated the group’s full-year outlook, and said that group revenue was ahead of forecasts. He blamed seasonality of contracts for the drain on cashflow. “The important thing we have said is our guidance is the same as it was before the change in cash flow. It is the same guidance for growing earnings per share. In this uncertain world and despite a 10 per cent fall in share price this is not an unreasonable position to have.”

The Scot, who took over from Ben Verwaayen last month, blamed the narrowing margin in Global Services on the strength of the euro. Hanif Lalani, BT group finance director, said that part of the problem was the rate at which the division is growing abroad, particularly in emerging markets. He said: “Sixty five per cent of the order intake was outside the UK, so what you can see is rapid expansion around the globe. With expansion of any type of business it costs you cash and it costs you margin.”

BT’s pension fund fell from a solid £1.4 billion surplus in the fourth quarter last year to a £600 million deficit in the three months to the end of June.

BT’s Openreach division, which maintains the lines that connect customers to local telephone exchanges, has been hit by the housing slump in the UK. Revenues for the division fell 1 per cent to £1.31 billion in the quarter, as fewer people moved home, but underlying earnings increased 2 per cent to £491 million.

However, Mr Livingston said that he did not believe BT was feeling the affects of a recession. He said: “In Q4 we said we expected a slowdown in new lines with fewer households being created. We have seen very, very, very strong growth in places like Egypt and South America and 33 per cent growth outside the UK and 13 per cent in total. If that’s a recession I’ll take it.”

Keith Bowman, at Hargreaves Lansdown, the broker, said: “For a perceived defensive stock, BT is really testing investors’ nerves. The earnings figures are at the low end of analysts’ forecasts, although new management is suggesting that investors hold their faith, given its estimate that full-year guidance will be met.”

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