TIDMBT.A
RNS Number : 5548D
BT Group PLC
30 January 2015
30 January 2015
BT GROUP PLC
BT ANNOUNCES RESULTS OF PENSION FUNDING VALUATION
BT and the Trustee of the BT Pension Scheme (BTPS, or the
'Scheme') have reached agreement on the 2014 triennial funding
valuation (the '2014 valuation') and recovery plan. The funding
deficit at 30 June 2014 is GBP7.0bn with the increase from the 2011
valuation reflecting the low interest rate environment at the
valuation date.
A 16 year recovery plan has been agreed reflecting BT's
long-term and sustainable cash flow generation. Over the next three
years payments will total GBP2.0bn. BT will pay GBP1.5bn by the end
of April 2015 out of existing cash and current investment balances
which totalled GBP2.8bn at 31 December 2014. This will be followed
by GBP250m in each of the years to March 2016 and March 2017.
For the seven years from 2018 to 2024 BT will make payments in
line with the 2011 agreement. These will be followed by five annual
payments of GBP495m through to 2029 and a final payment of GBP289m
in 2030.
BT and the Trustee will review the funding of the Scheme in the
normal way at the 2017 valuation. If the deficit is lower than the
remaining recovery plan, that reduction will be reflected in the
new recovery plan.
BT has agreed to continue to provide the Trustee with certain
protections as detailed in the notes below. BT has also discussed
details of the potential acquisition of EE with the Trustee.
Tony Chanmugam, BT Group Finance Director, said: "I am pleased
that we have agreed the 2014 triennial funding valuation and
recovery plan with the Trustee. This agreement is a good outcome
for the Scheme's 300,000 members and BT. The increase in the
deficit from the 2011 valuation reflects the low interest rate
environment. We have agreed a 16 year recovery plan reflecting the
strength and sustainability of our future cash flow generation.
We remain focused on our prudent financial policy of investing
in our business, reducing net debt, supporting the pension fund and
paying progressive dividends."
Paul Spencer CBE, Chairman of the BTPS Trustee, said: "The
Trustee is pleased to have reached agreement with BT on the
valuation of the Scheme as at 30 June 2014. The valuation reflects
the economic and market conditions at the valuation date and the
improved financial position of BT. The agreement with BT secures an
updated funding plan for the Scheme supported by a range of
enhanced protections."
Enquiries
Press office:
Dan Thomas Tel: 020 7356 5369
Investor relations:
Damien Maltarp Tel: 020 7356 4909
About BT
BT is one of the world's leading providers of communications
services and solutions, serving customers in more than 170
countries. Its principal activities include the provision of
networked IT services globally; local, national and international
telecommunications services to its customers for use at home, at
work and on the move; broadband, TV and internet products and
services; and converged fixed/mobile products and services. BT
consists principally of five lines of business: BT Global Services,
BT Business, BT Consumer, BT Wholesale and Openreach.
For the year ended 31 March 2014, BT Group's reported revenue
was GBP18,287m with reported profit before taxation of
GBP2,312m.
British Telecommunications plc (BT) is a wholly-owned subsidiary
of BT Group plc and encompasses virtually all businesses and assets
of the BT Group. BT Group plc is listed on stock exchanges in
London and New York.
For more information, visit www.btplc.com.
Detailed information
1. Funding valuation
1.1. BT and the Trustee of the BTPS have reached agreement on
the approach to the 2014 valuation.
1.2. The funding deficit at 30 June 2014 is GBP7.0bn (GBP5.6bn
after tax relief).
1.3. A summary of the funding position and principal assumptions
is shown in the table below:
June June 2014 Comment
2011
--------------------------- ------- ---------- -------------------------------------
Scheme generated investment
returns of 5.8% pa over the
Assets (GBPbn) 36.9 40.2 period
--------------------------- ------- ---------- -------------------------------------
Increase in 2014 liabilities
mainly due to significant falls
Liabilities (GBPbn) (40.8) (47.2) in real interest rates
--------------------------- ------- ---------- -------------------------------------
Deficit (GBPbn) (3.9) (7.0)
--------------------------- ------- ---------- -------------------------------------
Funding level 90.4% 85.2%
--------------------------- ------- ---------- -------------------------------------
Contribution rate to meet the
Contribution rate benefits of current employed
for future benefits members to be increased to 16%
(as % of pensionable from 1 April 2015 through to
salaries) 13.5% 16.0% the next valuation date
--------------------------- ------- ---------- -------------------------------------
Prudent view of future returns
on the expected asset portfolio,
Equivalent real reduction primarily reflects
discount rate 2.0% 1.0% falls in real interest rates
--------------------------- ------- ---------- -------------------------------------
Long-term expectations reflecting
Average RPI inflation 3.2% 3.5% market data
--------------------------- ------- ---------- -------------------------------------
1.0% margin below RPI compares
to Office for Budget Responsibility
projection of 1.3% to 1.5%.
The Bank of England's long-term
CPI inflation (long-term) 2.2% 2.5% CPI inflation target is 2.0%
--------------------------- ------- ---------- -------------------------------------
Life expectancy 2014 valuation makes allowance for additional
improvements in future life expectancy compared
with 2011 valuation
--------------------------- ----------------------------------------------------------
1.4. Average life expectancies at the 2014 valuation date, for
members 60 years of age, are as follows:
June 2011 June 2014
assumptions assumptions
---------------------------------- ------------- -------------
Male in lower pay bracket 26.3 26.1
---------------------------------- ------------- -------------
Male in medium pay bracket 28.1 27.5
---------------------------------- ------------- -------------
Male in high pay bracket 29.0
---------------------------------- ------------- -------------
Female in lower pay bracket 28.7 28.9
---------------------------------- ------------- -------------
Female in high pay bracket 29.2
---------------------------------- ------------- -------------
Average improvement for a member
retiring at age 60 in 10 years'
time 1.2 1.3
---------------------------------- ------------- -------------
1.5. Deficit payments of GBP2.65bn have been made since the 2011
valuation and the Scheme's assets have grown by more than assumed
under the 2011 funding assumptions. The low interest rate
environment at the valuation date has resulted in a higher value
being placed on the Scheme's liabilities which has more than offset
the improvements in the Scheme's assets.
1.6. In line with developing market practice and reflecting a
more sophisticated methodology, the discount rate at 30 June 2014
has been derived from prudent return expectations above a yield
curve based on gilt and swap rates. The discount rate reflects
views of future returns at the valuation date. This gives a prudent
discount rate of 2.1% pa above the yield curve initially, trending
down to 0.6% pa above the curve in the long-term.
1.7. The existence of the Crown Guarantee has not been taken in
to account in reaching this agreement.
1.8. The next funding valuation will have an effective date no
later than 30 June 2017.
2. Funding
2.1. BT will make a lump sum payment of GBP1.5bn by the end of
April 2015, followed by payments of GBP250m pa in each of the years
to March 2016 and 2017. The recovery plan is shown in the table
below.
Year to 2011 agreement 2014 agreement
31 March GBPm * GBPm
----------- --------------- ---------------
2015 655 1,500 **
----------- --------------- ---------------
2016 666 250
----------- --------------- ---------------
2017 676 250
----------- --------------- ---------------
2018 688 688
----------- --------------- ---------------
2019 699 699
----------- --------------- ---------------
2020 711 711
----------- --------------- ---------------
2021 724 724
----------- --------------- ---------------
2022 670 670
----------- --------------- ---------------
2023 670 670
----------- --------------- ---------------
2024 670 670
----------- --------------- ---------------
2025 495
----------- --------------- ---------------
2026 495
----------- --------------- ---------------
2027 495
----------- --------------- ---------------
2028 495
----------- --------------- ---------------
2029 495
----------- --------------- ---------------
2030 289
----------- --------------- ---------------
* including contingent contributions
** payable by 30 April 2015
2.2. The GBP1.5bn lump sum payment will be split over March and
April 2015. We expect GBP800m to GBP900m to be paid in March 2015,
receiving tax relief at 21%, with the balance payable in April
receiving tax relief at 20%. There will be no impact on the group's
tax charge in the income statement. There will be a benefit from
lower cash tax payments up until the second quarter of 2016/17.
2.3. BT and the Trustee will review the funding of the Scheme in
the normal way at the next valuation. If the deficit is lower than
the remaining recovery plan, that reduction will be reflected in
the new recovery plan.
2.4. The valuation documentation will be submitted to the
Pensions Regulator within ten working days of its completion as
required by legislation.
3. Other protections
Other features of the agreement with the Trustee which provide
support to the Scheme are:
3.1. Shareholder distributions
3.1.1. Continuation to the protection agreed at prior valuations
with terms amended to provide matching payments to the Scheme in
the event that shareholder distributions exceed a threshold. The
threshold allows for 15% pa dividend per share growth plus GBP300m
pa of share buybacks on a cumulative basis.
3.1.2. BT has agreed to consult with the Trustee if it considers
share buybacks in excess of GBP300m pa or making a special
dividend.
3.1.3. These provisions apply from 29 January 2015 until the
finalisation of the next valuation, or 31 March 2019 if
earlier.
3.2. Material corporate events
3.2.1. Continuation of the protections agreed under the 2011
valuation, such that in the event that BT generates net cash
proceeds greater than GBP1bn from disposals (net of acquisitions)
in any 12 month period, BT will make additional contributions to
the Scheme equal to one third of those net cash proceeds.
3.2.2. BT has agreed to consult with the Trustee if: it
considers making acquisitions with a total cost of more than GBP1bn
in any 12 month period; it considers making disposals of more than
GBP1bn; or it considers making a Class 1 transaction (acquisition
or disposal); or it is subject to a takeover offer.
3.2.3. BT has also agreed to advise the Trustee should there be
other material corporate events which may impact BT's covenant to
the Scheme.
3.2.4. These provisions apply from 29 January 2015 until the
finalisation of the next valuation, or 31 March 2019 if
earlier.
3.3. Negative pledge
3.3.1. Continuation of the protection agreed under the 2008
valuation, that future creditors will not be granted superior
security to the Scheme in excess of a GBP1.5bn threshold, to cover
both BT plc and BT Group plc. This provision applies until the
deficit reduces to below GBP2.0bn at any subsequent funding
valuation.
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