Thursday 13 May 2021 10:25 am

BT: Investors unenthused by £2bn pension funding deal as shares drop 6.3 per cent

BT today announced plans to bring full-fibre broadband to an extra 5m homes as the financial burden of its pension deficit eased.

The telecoms firm struck a new deal for its pension, which is one of the biggest in the country at £7.98bn.

Some £2bn of deficit will be met through an asset-backed funding arrangement secured against its EE mobile business.

The balance will be met over ten years, starting with an annual cash contribution of £900m.

Simon Lowth, chief financial officer at BT, said that the outcome was good for all members of the BT Pension Scheme with reduced risk for both sides.

“This agreement keeps us on track for zero funding deficit by 2030, whilst ensuring we have the financial capacity to drive our value-enhancing investment opportunities, including in our FTTP and 5G rollouts and modernisation programme.”

Alongside its pension plans, BT said pre-tax profit was down 23 per cent to £1.8bn, largely due to the dip in revenue to £21.3bn.

Following the announcement, shares in BT dropped 6.3 per cent during afternoon trading.

Russ Mould, investment director at AJ Bell, said that despite BT delivering solutions about major issues facing the business, investors “don’t necessarily love what they see”.

“The company effectively has three significant drains on its financial resources. These are its substantial pension commitments, the rollout of fibre broadband and funding the acquisition of content rights for its BT Sport channel.

“The latest valuation of the pension reveals a massive deficit which will require hundreds of millions of pounds worth of funding every year.

“The company’s net debt pile is also pretty eye-watering, and the surprise isn’t really that dividends remain off the table for now but that they are likely to come back in the current financial year.

“The UK’s new super deduction tax on capital expenditure is clearly doing a lot of the heavy lifting here.”