TIDMBT.A
RNS Number : 2799T
BT Group PLC
14 November 2023
14 November 2023
BT Group announces triennial pension valuation
BT Group and the BT Pension Scheme ("BTPS") have agreed the 30
June 2023 triennial funding valuation ("2023 valuation") and how
the deficit will be addressed (the "recovery plan"):
1. The funding deficit at 30 June 2023 is GBP3.70bn, down from
GBP7.98bn at the 2020 funding valuation following GBP4.36bn of
deficit contributions
2. Annual contribution amounts remain unchanged, at GBP600m in
each financial year until 31 March 2030, and a final payment of
GBP490m before 30 April 2030. In addition, BT Group will continue
to make payments of GBP180m each year under the asset-backed
funding arrangement agreed at the 2020 valuation
The BTPS will continue to de-risk its investment strategy
through to 2034, providing more certainty over outcomes, and is on
track to be fully funded by 2030.
BT Group has agreed to continue to provide the BTPS with legal
protections to 2035 as part of a long-term funding framework. The
changes made to contractual protections for the BTPS at this
valuation are consistent with our statutory obligations under the
Pension Schemes Act 2021. The amendments agreed to the BTPS's
existing stabiliser mechanism provide greater certainty that BTPS
will achieve full funding and increase the likelihood of a future
refund to BT Group.
Simon Lowth , BT Group Chief Financial Officer, said: "I am
pleased that the BTPS continues to deliver in line with the
long-term plan, despite the uncertainty and headwinds observed
since 2020. Building on the framework agreed at the 2020 valuation
allowed for a swift conclusion of the 2023 valuation.
"The agreement allows us to deliver on our strategic initiatives
such as investing in our networks and transforming our business.
And it is consistent with our funding priorities of investing in
value enhancing opportunities, supporting our pension funds, paying
progressive dividends and maintaining a strong balance sheet. "
Otto Thoresen, BTPS Chairman, said: "The BTPS continues to be on
track to fulfil its commitments to members, despite high levels of
macroeconomic volatility and uncertainty.
"Our deficit is reducing, funding levels have improved and we
remain on course to be fully funded by 2030."
Further information
1. Funding position
1.1 Deficit at 30 June 2023
1.1.1 The funding deficit at 30 June 2023 is GBP3.70bn.
1.1.2 A summary of the funding position and principal
assumptions is shown in the table below.
June 2020 June 2023
Assets (GBPbn) 57.32 37.22
---------- ----------
Liabilities (GBPbn) (65.30) (40.92)
---------- ----------
Deficit (GBPbn) (7.98) (3.70)
---------- ----------
Funding level 88% 91%
---------- ----------
Real discount rate (1.7)% 1.6%
Average RPI inflation 3.1% 3.6%
------- --------
Average CPI inflation 2.4% 3.2%(1)
------- --------
(1) Assumed to be 1% below RPI until 28 February 2030 and in
line with RPI thereafter.
1.1.3 Average life expectancies, for members 60 years of age,
are as follows.
June 2020 June 2023
Male in lower pension bracket 25.8 25.5
---------- ----------
Male in higher pension
bracket 28.0 27.2
---------- ----------
Female 28.5 28.0
---------- ----------
Average additional life
expectancy for a 60 year
old in 10 years' time 0.9 0.8
---------- ----------
1.1.4 As noted at the 2020 valuation, we expected headwinds to
the BTPS deficit from two Government announcements which took place
after 30 June 2020:
1.1.4.1 The reform of the Retail Prices Index reduced the value
of the Scheme's assets by more than it reduced the value of its
liabilities; and
1.1.4.2 Government's intention to pay higher pension increases
to members of public sector pension schemes which automatically
flow through to the BTPS increased the Scheme liabilities.
1.1.5 The reduction in the BTPS deficit since 30 June 2020
reflects GBP4.36bn of deficit contributions made over the period.
GBP1.2bn of headwinds from the above regulatory changes were
mitigated through asset returns and a fall in life expectancy.
1.1.6 Hedging and risk-reduction implemented by the BTPS in
recent years has effectively protected the BTPS against certain
risks: the increase in real interest rates over the period has had
limited impact on the funding deficit, despite the significant
reduction in the size of both the assets and the liabilities.
2. Investment strategy and return expectations
2.1 The 2023 valuation maintains the gradual de-risking approach
used for the 2017 and 2020 valuations, which assumed the BTPS would
reach a low risk investment strategy by 2034, consisting
predominantly of bond and bond-like investments. As at 30 June
2023, the BTPS held 71% of its assets in cash flow matched assets
and 29% in growth assets.
2.2 The discount rate at 30 June 2023 has been set consistently
with the 2017 and 2020 valuations. It is derived from prudent
investment return expectations above a risk-free yield curve based
on gilt and swap rates, reflecting the investment strategy over
time. It is equivalent to using a flat discount rate of 1.0% per
year above the risk-free yield curve, or 5.3% per year.
3. Funding
3.1 The GBP3.70bn funding deficit is on track to be eliminated
by June 2030 through annual contributions from BT Group and
payments from an Asset Backed Funding ("ABF") arrangement.
3.2 An ABF arrangement, which was set up in 2021 as part of the
last valuation agreement, pays GBP180m into the BTPS every year
until June 2034. The stream of payments is financed through
dividends from EE Limited, and shares in EE Limited provide
security over the payment stream.
3.3 If the BTPS reaches full funding as calculated by the Scheme
Actuary at any 30 June, subsequent payments to the BTPS from the
ABF will cease.
3.4 The present value of the full payment stream was GBP1.2bn at
30 June 2023. The market value was GBP1.1bn at 30 June 2023 and was
included in calculating the funding deficit. The GBP0.1bn
difference reflects the possibility that the full payment stream
will not be required.
3.5 BT Group received tax relief at inception of the ABF based
on the original market value of GBP1.7bn, and will receive further
tax relief if payments are made to the BTPS in excess of this
amount.
3.6 Payments from 1 July 2023 to address the GBP3.70bn funding
deficit are shown in the table below.
Year to June 2020 June 2023 agreement (GBPm)
31 agreement
March (GBPm)
Total ABF payments(1) Direct Total
payments
----------- ---------------- ---------- -------
2024 110(2) 110(2,3) 110(2)
----------- ---------------- ---------- -------
2025 780 180 600(3) 780
----------- ---------------- ---------- -------
2026 780 180 600(3) 780
----------- ---------------- ---------- -------
2027 780 180 600(3) 780
----------- ---------------- ---------- -------
2028 780 180 600(3) 780
----------- ---------------- ---------- -------
2029 780 180 600(3) 780
----------- ---------------- ---------- -------
2030 780 180 600(3) 780
----------- ---------------- ---------- -------
2031 670 180 490 670
----------- ---------------- ---------- -------
2032 180 180 180
----------- ---------------- ---------- -------
2033 180 180 180
----------- ---------------- ---------- -------
2034 180 180 180
----------- ---------------- ---------- -------
(1) Payments stop once deficit eliminated.
(2.) Excludes a GBP500m direct contribution and a GBP180m ABF
payment made to the BTPS before 30 June 2023
(3) Direct payments are due by 30 April each year. GBP10m per
year is payable to the BTPS. BT Group currently intends to the pay
the balance into the co-investment vehicle.
3.6 BT Group will continue to make annual contributions towards
the cost of administering the BTPS (down from GBP30m pa at the 2020
valuation to GBP27m pa), and Pension Protection Fund levies (which
have reduced substantially since the last valuation, from GBP30m in
2020 to around GBP4m in 2023).
4. Stabiliser mechanism
4.1 As part of the 2020 valuation, BT Group and the BTPS put in
place a stabiliser mechanism, comprised of a co-investment vehicle
and future funding commitments.
4.2 The co-investment vehicle provides BT Group with some
protection against the risk of overfunding by allowing money to be
returned if not needed by the BTPS, enabling BT Group to provide
upfront funding with greater confidence.
4.3 The future funding commitment agreed triggers an additional
stream of contributions should the deficit fall materially behind
plan.
4.4 Co-investment vehicle
4.4.1 Payments made by BT Group into the co-investment vehicle
will be invested as if part of the overall BTPS investment
strategy. The value of the assets held in the vehicle will be
included in the assets of the BTPS for the purposes of calculating
the both the funding deficit and the IAS 19 deficit.
4.4.2 BT Group is eligible for future refunds if some of the
co-investment vehicle funds are surplus to the BTPS's requirements,
unless the BTPS, acting prudently but reasonably, decides to defer
or reduce these payments. The period over which this will be
assessed has been changed from a single date, 30 June 2034, to a
series of dates between June 2032 and June 2042, improving the
likelihood of a refund for BT Group as outcomes are no longer
dependent solely on market conditions at a single date. BT Group
will receive tax relief if and when any funds are paid to the BTPS
from the vehicle. BT Group is taxed on the investment gains in the
co-investment vehicle, which are subsequently tax deductible if
paid to the BTPS.
4.5. Future funding commitment
4.5.1 In the potential scenario that the funding deficit falls
behind plan, i.e. the recovery plan is no longer sufficient to meet
the deficit, BT Group has agreed additional contributions which
will automatically be payable.
4.5.2 An annual payment stream is switched on should two
consecutive semi-annual reviews of the funding position show the
funding deficit has fallen behind plan. The reviews will be carried
out every June and December, with the first review to take place at
31 December 2023.
4.5.3 Annual payments of GBP150m (2020: GBP150m) commence if the
deficit is GBP1bn behind plan before the 2026 valuation, increasing
to GBP300m (2020: GBP200m) if the deficit is GBP2bn behind plan
before the 2026 valuation. Payments which have been triggered will
be published as part of BT Group's financial statements.
4.5.4 The first payment is due within 12 months of the payments
being switched on. Payments will stop once the semi-annual reviews
show the deficit is back on plan. Payments can switch on again if
the deficit position subsequently deteriorates. Any payments under
this mechanism cease by 30 June 2034.
5. Protections
BT Group has agreed to continue to provide the BTPS with certain
protections to 2035.
5.1. Shareholder distributions
5.1.1 For the next three years, continuation of the protection
which provides additional payments to the BTPS by the amount that
shareholder distributions exceed a threshold has been agreed. The
threshold allows for 10% pa dividend per share growth based on
dividends of 7.7p per share in FY23 , adjusted to reflect the
interim dividend declared at our half-year results .
5.1.2 BT Group has agreed to consult with the BTPS if it
considers share buybacks for any purpose other than relating to
employee share awards.
5.1.3 BT Group has agreed to consult with the BTPS before making
any shareholder distributions in any of the next 3 years if both
annual normalised free cashflow of the Group is below GBP1bn in the
year and distributions within the year would be in excess of 120%
of the threshold in 5.1.1; or before making a special dividend.
5.2. Material corporate events
5.2.1 If in any financial year BT Group generates net cash
proceeds from disposals above a threshold, BT Group will pay extra
contributions. The proceeds are net of acquisitions and the
threshold is GBP750m until the 2026 valuation.
5.2.2 The amount payable is one third of the net cash
proceeds.
5.2.3 BT Group will continue to consult with the BTPS if: it
considers making acquisitions or disposals with a consideration of
more than GBP1bn in any 12 month period; it considers making a
Class 1 transaction which will have a material impact on the BTPS;
or it is likely to be subject to a takeover offer.
5.2.4 BT Group has also agreed to consult the BTPS should there
be other corporate or third-party events which may have a
materially detrimental impact on BT Group's covenant to the BTPS
and use best endeavours to agree appropriate mitigation.
5.3. Negative pledge
5.3.1 Continuation of the protection that future creditors will
not be granted superior security to the BTPS in excess of GBP0.5bn,
to cover any member of the BT Group. Business as usual financing
arrangements do not trigger this protection.
ENDS
About BT Group
BT Group is the UK's leading provider of fixed and mobile
telecommunications and related secure digital products, solutions
and services. We also provide managed telecommunications, security
and network and IT infrastructure services to customers across 180
countries.
BT Group consists of three customer-facing units: Business
covers companies and public services in the UK and internationally
Consumer serves individuals and families in the UK;; Openreach is
an independently governed, wholly owned subsidiary wholesaling
fixed access infrastructure services to its customers - over 650
communications providers across the UK.
British Telecommunications plc 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 the London Stock
Exchange.
For more information, visit www.bt.com/about
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