BT to make £2 billion payment into pension deficit
Telecoms group accelerates deficit reduction programme
By CFOWorld.co.uk | CFO UK | Published 11:10, 23 March 12
BT will pay a lump sum of £2 billion to its pensions deficit before the end of March, it announced on Friday.
The deficit of the UK's biggest private-sector pension scheme stood at £4.1 billion at the end of June 2011 and the lump sum will accelerate its reduction. The telecoms company has already reduced it from £9 billion in 2008.
Shares in the former telecoms monopoly leapt to a four-year high on Friday after it announced the one-off payment and further lower annual contributions for the next nine years, compared with its previous goal of clearing the deficit over 17 years.
"This agreement under which the company makes an immediate contribution to the scheme of almost half of the deficit reflects BT's financial strength," chief executive Ian Livingston said.
"BT's long-term sustainable cash generation has improved significantly since the 2008 valuation and we remain focused on improving BT's financial strength, investing in our future and enhancing shareholder returns."
Under the new plan, BT will make a lump sum payment of £2 billion before the end of March, followed by nine deficit payments of £325 million in March of each year.
That compared with a previous payment plan which ran over 17 years and started off with an annual payment of £525 million which would then rise further.
"Our sum-of-parts valuation for BT had assumed a net-of-tax pension deficit of around £5.1 billion," Oriel Securities said. "This will now have to fall. The difference is around a 25 pence per share boost to our estimate of BT's fair value."
BT's pension scheme has been a key area of concern for analysts and investors in recent years, after the company cut costs and improved its operations under Livingston to improve cash generation.
The company said it would pay more into the pension fund if its cumulative dividends exceeded its pension top-ups between 2012 and 2015. It must also pay a third of the proceeds into the pension fund if it makes any asset sales worth more than £1 billion.
At 09:05 a.m. British time, BT shares were up 6.8 percent at a four-year high of 235.2 pence, the biggest rise by a European blue-chip stock.
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