Shares in BT Group slumped over 10% after the firm reported disappointing cash outflow levels and margins at its Global Services division in the first quarter, a Dow Jones report said.
BT's pension had also slipped into deficit, the report added.
'Overall the results were positive, but there are three things (that might have disappointed the market): our Global Services margins, our first quarter cash outflow, and the pension deficit,' recently appointed Chief Executive Ian Livingston, quoted by the Dow Jones report, said.
The company said that while it expects to see continued strong revenue growth in its BT Global Services, margins on earnings before interest, taxes, depreciation and amortization 'may fall slightly in 2008/2009 in part due to currency movements.'
BT reported free cash outflow of 734 million pounds (â‚¬934 million) for the first quarter, far above 152 million pounds (â‚¬193 million) last year, and said that its pension deficit at June 30 was 600 million pounds (â‚¬764 million), including tax, compared with a surplus of 2 billion pounds (â‚¬2.5 billion) at end-March.
BT's cash outflow 'looks dreadful' said Collins Stewart, highlighting the figure as the main negative surprise.
Another London-based analyst said that Global Services' margins, profitability and outlook were weaker than expected.
'The outlook for Global Services, which is supposed to be the company's main growth area, was disappointing,' he said.
BT shares were down 10.58% at 177 pence, the biggest faller in percentage terms in an overall weaker.
BT's share price performance contrasted sharply with that of European peers France Telecom and Spain's Telefonica SA, both of which rose after reporting what analysts said were a generally solid set of results.
The drop in BT's share price came despite the company reporting a 3% rise in revenue, beating expectations. It also maintained its full year guidance for growth in revenue and earnings.