BT pays to fill £6bn pensions hole

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BT attempted to put concerns about its pension shortfall to rest yesterday as it confessed to a £6.3bn black hole under one accounting standard but insisted top-up payments need only rise by 16 per cent a year.

BT attempted to put concerns about its pension shortfall to rest yesterday as it confessed to a £6.3bn black hole under one accounting standard but insisted top-up payments need only rise by 16 per cent a year.

It is boosting the top-up payments it is making into the fund by £32m a year to £232m to clear a shortfall that has risen to £2.1bn at the end of last December from £1bn three years before.

That is more or less in line with guidance given three months ago when BT said its actuary had advised it that there was no reason to significantly change the top-up payments it was making. It is spreading the top-up payment over 15 years. Shares in the telecoms company rose nearly 2 per cent, or 3.5p, to close at 188.5p last night after BT reported fourth-quarter figures which beat most analysts' forecasts.

Pre-tax profits, before goodwill and exceptional items, rose 32 per cent to £490m in the fourth quarter to 31 March. Turnover was up 1 per cent in the fourth quarter at £4.78bn.

BT's chairman, Sir Christopher Bland, said: "This has been a really good year for BT. We believe we're well placed to meet new challenges.... BT today feels like a new company."

Analysts were particularly impressed by the company's net debt figure, which now stands at £9.6bn compared with £13.7bn a year before and which was comfortably beneath its £10bn target.

They were also pleased with the final dividend payout of 4.25p a share, boosting the total for the year to 6.5p a share. That beat most forecasts of a total dividend of 5.8p to 5.9p.

Analysts at WestLB Panmure said: "BT's Q4 results came in at the top end of consensus with a strong improvement in earnings and free cash flow. This fed through to an enhanced dividend distribution".

There was some disappointment that revenues from its core voice market had fallen 2 per cent in the quarter although that was offset by solid performances from newer services such as broadband internet provision. Total revenues for its consumer arm, BT Retail, rose 3 per cent in the quarter to £3.39bn.

Ben Verwaayen, chief executive, said BT had 936,000 broadband customers as at the end of last week. The company is adding about 25,000 new users a week, putting it well on track to hit its target of having 1 million customers by the summer.

"At the headline level, growth remains lacklustre at plus 1 per cent. However, underneath the headline there are encouraging signs ... a strong performance in broadband is key to this improvement," the WestLB team said.

Mr Verwaayen also stressed that BT saw big opportunities in the mobile phone market but said he would give more detail there in the summer. He insisted, however, that "you don't need to own a mobile phone operator to be in this business".

The credit ratings agency Standard & Poor's affirmed the company's long and short-term corporate credit ratings while the rival agency Moody's expressed concern about the size of BT's pension deficit under the accounting standard FRS17.

BT reports three separate figures for its pension fund shortfall. The first - a shortfall of £2.1bn - is its funding valuation and represents the amount of extra cash it has to contribute, equating to £232m over 15 years. The second figure - a £1.4bn deficit according to the accounting standard SSAP 24 - affects the company's profit and loss account. Up from £0.4bn three years before, it means BT will have to take an extra exceptional charge of £120m this year.

The third figure, which shows an even greater deficit of £6.3bn under FRS 17, has no bearing on cash contributions or on the profit and loss account. As at the end of last week, the shortfall had shrunk to £5.7bn.

In an effort to allay pensioners' fears about the shortfall, a spokesman insisted that BT would carry on funding the gap and that benefits would not be cut.

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