BT’s pension deficit hits £7bn while profits rise from TV, broadband and sport customers

The figures

In its third quarter results, BT revealed revenue slipped two per cent to £13.2bn in the nine months to 31 December, while adjusted pre-tax profit leaped 11 per cent to £2.1bn.

BT's consumer division, including TV, broadband and those all-important BT Sport customers, increased pre-tax profit by 43 per cent to £251m. Its business division also grew four per cent. Elsewhere, profits at the wholesale and global services divisions fell seven and ten per cent respectively.

More significantly, BT has addressed its sizeable £7bn pension deficit, up from £3.9bn in 2012, with plans for a 16-year recovery plan, including a payment of £2bn over the next three years.

Why it’s interesting

On the pension front – and BT is the largest private sector defined benefit pension plan in the UK – a rise in the billion-pound deficit was expected due to low interest rates and central bank bond-buying reducing returns. Addressing this was a priority.

BT’s clout is bigger than ever.

Having forked out more than £1.5bn for premium sports broadcast rights, most notably Premier League games, investors want to know if that’s paying off – and if it’s worth doing again with the upcoming bidding for the next three seasons of football imminent.

Its move into mobile, with the proposed acquisition of network EE for £10bn, has signaled its ambition to offer quad-play services (TV, phone, broadband and mobile). Investors will be eager to know how that will add to BT’s bottom line.

What BT said

Chief executive Gavin Patterson said:

I am pleased that we have agreed the 2014 triennial funding valuation and recovery plan with the trustee of the BT pension scheme. The funding deficit is £7.bn at 30 June 2014, an increase from 2011 reflecting the low interest rate environment. Over the next three years we will pay £2.bn into the scheme, which is less than we paid over the previous three years. We have agreed a 16 year recovery plan reflecting the strength and sustainability of our future cash flow generation.

This quarter we have delivered good growth in profit before tax and strong free cash flow.

Openreach achieved the highest growth in the number of landlines on record. It was also our best ever quarter for fibre broadband net additions. All the major communications providers are responding to the strong market demand for fibre broadband, helping to drive take-up in what is already a very competitive market.

Mobility is a key growth area for us. We are making good progress on our due diligence in relation to a possible acquisition of EE and will make further announcements in due course. In the meantime, our Consumer mobile launch plans remain on track.