Blueprint
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the
Securities Exchange Act of 1934
Date of
Announcement: 10 May
2018
BT Group plc
(Translation
of registrant's name into English)
BT
Group plc
81 Newgate
Street
London
EC1A 7AJ
England
(Address
of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form
20-F..X...
Form 40-F
Indicate
by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information
to the Commission pursuant to Rule 12g3-2(b) under the Securities
Exchange Act of 1934.
Yes
No ..X..
If
"Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-
________
This announcement contains inside information.
May 10, 2018
BT ANNOUNCES TRIENNIAL PENSION FUNDING VALUATION
BT and
the Trustee of the BT Pension Scheme ('BTPS', or the 'Scheme') have
reached agreement on the 2017 triennial funding valuation (the
'2017 valuation') and recovery plan. The funding deficit at 30 June
2017 is £11.3bn, with the increase from the 2014 valuation
mostly due to a fall in long-term real interest rates.
The
deficit will be met over a 13 year period, maintaining the
remaining period of the previous plan.
The
deficit contributions have three components:
1.
Payments by BT within the 3 years to 31 March 2020 totalling
£2.1bn:
-
This is equal to the amount due over the same period under the
previous recovery plan
-
£850m of this was paid in March 2018 and the remaining
£1,250m is to be paid by 30 June 2019
2. A
further £2.0bn contribution, due to be funded from the
proceeds of the issuance of bonds, which will be held by the BTPS.
The bonds will be:
-
issued as soon as practicable under BT's Euro Medium Term Note
Programme
-
sterling denominated and have maturities ranging from 2033 to
2042
-
£1.0bn fixed interest and £1.0bn CPI-linked
3. For
the 10 years from 1 April 2020 to 31 March 2030, BT will make
annual payments of around £900m typically by 31 March each
year:
-
£400m of BT's contribution in the financial year 2020/21 will
be made by 30 June 2020
This
means that the recovery plan includes material contributions by BT
to the Scheme of £4.5bn by 30 June 2020, when the next
valuation is expected to take place.
An
important aspect of the agreement relates to lowering the level of
investment risk in the Scheme, as well as continuing to de-risk in
the future. Steps have already been taken to move 15% of the
assets from growth assets, such as equities and property, to
lower-risk investments, such as bonds, providing a substantial
reduction in risk for the Scheme and BT.
BT has
agreed to continue to provide the Trustee with certain protections,
on terms broadly in line with those agreed at the 2014 valuation.
The approach for shareholder distributions has been updated so that
BT will provide additional payments to the Scheme by the amount
they exceed a threshold. The threshold allows for dividend per
share growth of 10% pa on a cumulative basis and an additional
£200m pa for share buybacks.
The
valuation documentation will be submitted to the Pensions Regulator
within ten working days of its completion as required by
legislation. BT and the Trustee will continue to monitor the
funding position of the BTPS, with the next formal review expected
to be undertaken in the normal way at the 2020
valuation.
We
previously announced the closure of Sections B and C of the BTPS
(representing over 99% of the BTPS active membership) to future
benefit accrual, which is expected to take effect from 30 June
2018. The employees impacted by this change will be able to join
the BT Retirement Saving Scheme ('BTRSS'), our main defined
contribution scheme, for future pension provision. Benefits accrued
in the BTPS for service prior to 1 July 2018 will remain preserved
within the BTPS and subject to revaluation in line with the BTPS
rules and relevant legislation. And we are increasing our
company contribution rates to the BTRSS. Over the coming year, we
will establish a new hybrid pension arrangement for non-management
employees ('team members') leaving the BTPS. It is intended that
this new arrangement will combine elements of both defined benefit
and defined contribution pension schemes and be designed to support
those team members on lower pay scales, giving them another option
for their retirement savings. These changes will reduce the
build-up of future defined benefit pension risk.
Simon Lowth, BT CFO, said: "I am pleased that together with
the Trustee we have reached an agreement over the pension fund
valuation and recovery plan that is both fair and affordable. It
draws a line under a key source of uncertainty for BT, the Scheme
members, and all our stakeholders, and allows us to move ahead with
confidence as we deliver on our strategic initiatives such as
investing in our network and improving customer experience. This
agreement is consistent with our funding priorities of investing in
the business, supporting our pension funds, paying progressive
dividends and maintaining a healthy balance sheet. The closure of
the Scheme and the investment strategy agreed will materially
reduce pensions risk for the company."
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 2017. The valuation
reflects the economic and market conditions at the valuation date
and secures an updated and improved funding plan for the Scheme
supported by a range of protections. The substantial contributions
agreed with BT in the near term, together with ongoing developments
in the Scheme's investment strategy, are expected to lead to a
material improvement in the stability of the Scheme's funding
position."
Further information
1. Funding position
1.1 The
funding deficit at 30 June 2017 is £11.3bn.
1.2 A
summary of the funding position and principal assumptions is shown
in the table below.
|
|
June 2014
|
June 2017
|
|
Assets
(£bn)
|
40.2
|
49.1
|
|
Liabilities
(£bn)
|
(47.2)
|
(60.4)
|
|
Deficit
(£bn)
|
(7.0)
|
(11.3)
|
|
Funding
level
|
85%
|
81%
|
|
|
|
|
|
Contribution
rate for future benefits1
|
16.0%
|
16.9%2
|
|
Real
discount rate
|
1.0%
|
(0.8)%
|
|
RPI
inflation
|
3.5%
|
3.4%
|
|
CPI
inflation
|
2.5%
|
2.4%
|
1 % of pensionable salaries.
2 payable until 30 June 2018 when Sections B and C of
the BTPS are expected to close to future benefit accrual. These
sections represent over 99% of the BTPS active membership.
Contributions towards the cost of administering the Scheme, PPF
levies and providing future benefits for the remaining members will
continue to be made after this date
1.3
Average life expectancies, for members 60 years of age, are as
follows.
|
Years
|
June 2014
|
June 2017
|
|
Male in
lower pay bracket
|
26.1
|
25.9
|
|
Male in
medium pay bracket
|
27.5
|
27.2
|
|
Male in
high pay bracket
|
29.0
|
28.6
|
|
Female
in lower pay bracket
|
28.9
|
28.6
|
|
Female
in high pay bracket
|
29.2
|
28.9
|
|
Average
improvement3
|
1.3
|
0.9
|
1.4 Between June 2014 and June 2017, the Scheme benefited from
asset returns of 10.5% pa, that were higher than assumed under the
2014 funding assumptions, and £2.0bn of deficit
contributions. The fall in long-term real
interest rates resulted in an increase in liabilities, which has
more than offset the improvements in the Scheme's
assets.
1.5
There has been a reduction in the liabilities as a result of
allowing for slower improvements to life expectancy being forecast
by actuaries. This impact has been broadly offset by the impact of
changes to the investment strategy that have reduced the level of
investment risk in the Scheme.
1.6 The
valuation documentation will be submitted to the Pensions Regulator
within ten working days of its completion as required by
legislation.
2. Investment strategy and return expectations
2.1 At
the 2014 valuation, the funding approach assumed the Scheme would
hold 60% of its investments in growth assets (such as equities and
property) for a period, before de-risking to a low-risk investment
approach by 2034.
2.2 The
2017 funding approach incorporates an allowance for a substantial
reduction in the level of investment risk for the Scheme, compared
to the approach underlying the 2014 agreement. A 15% reduction in
growth assets has already been implemented in line with this new
approach, enabling BT and the Scheme to benefit from a lower level
of investment risk. Further de-risking will take place to
reach a low risk investment approach by 2034.
2.3 The
discount rate at 30 June 2017 has been derived from prudent
investment return expectations above a risk-free yield curve based
on gilt and swap rates, reflecting the revised investment strategy
over time. This approach gives a prudent discount rate of 1.4% per
year above the risk-free yield curve initially, trending down to
0.7% per year above the risk-free yield curve in the long-term. The
assumption is equivalent to using a flat discount rate of 1.0% per
year above the yield curve.
3 for
a member retiring at age 60 in 10 years' time
3. Funding
3.1 The
recovery plan is shown in the table below.
|
Year to March
|
June 2014, £m
|
June 2017, £m
|
|
2015
|
1,5004
|
|
|
2016
|
250
|
|
|
2017
|
250
|
|
|
2018
|
688
|
850
|
|
2019
|
699
|
2,0005
|
|
2020
|
711
|
1,2506
|
|
2021
|
724
|
9007
|
|
2022
|
670
|
9008
|
|
2023
|
670
|
907
|
|
2024
|
670
|
907
|
|
2025
|
495
|
907
|
|
2026
|
495
|
907
|
|
2027
|
495
|
907
|
|
2028
|
495
|
907
|
|
2029
|
495
|
907
|
|
2030
|
289
|
907
|
4. Bond issuance
4.1 The BTPS is due to fully subscribe for £2bn of bonds, to
be issued as soon as practicable by BT under BT's Euro Medium Term Note
Programme. The bonds will be issued in
3 fixed interest and 3 CPI-linked tranches:
● 15 years: £330m
fixed interest, and £330m CPI linked
● 21 years: £330m
fixed interest, and £330m CPI linked
● 24 years: £340m
fixed interest, and £340m CPI linked
4.2 The coupon on the CPI-linked bonds will increase annually in
line with CPI. At maturity, each tranche of CPI-linked bonds will
be repaid at a premium equal to cumulative CPI. For these purposes,
annual CPI movements will be capped at 5% and floored at
0%.
4.3 It has been confirmed on behalf of the BTPS that it intends to
sell no more than £600m in aggregate nominal amount from the
six bond tranches over the three years following their
issue.
4 payable by 30 April 2015
5 BT expects to fund this contribution (due to be paid
as soon as practicable, but no later than 30 June 2019) from the
proceeds of a bond issuance by British Telecommunications plc which
will be held by the BTPS
6 payable by 30 June 2019
7 £400m payable by 30 June 2020
8 £200m payable by 30 June 2021
5. Protections
BT has
agreed to continue to provide the Trustee with certain
protections.
5.1. Shareholder distributions
5.1.1
Continuation of the protection which provides additional payments
to the Scheme by the amount that shareholder distributions exceed a
threshold. The threshold has been updated to allow for 10% pa
dividend per share growth plus £200m pa of share buybacks on a
cumulative basis. This obligation applies until 30 June 2021 or the
finalisation of the next valuation, if earlier.
5.1.2.
BT has agreed to consult with the Trustee if it considers share
buybacks in excess of £200m pa or making a special dividend.
This obligation is on-going unless otherwise
terminated.
5.2. Material corporate events
5.2.1.
Continuation of the protection, such that in the event that BT
generates net cash proceeds greater than £1bn 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. This obligation applies until the next valuation
is signed.
5.2.2.
BT has agreed to consult with the Trustee if: it considers making
acquisitions with a total cost of more than £1bn in any 12
month period; it considers making disposals of more than £1bn;
or it considers making a Class 1 transaction which will have a
material impact on the Scheme (acquisition or disposal); or it is
subject to a takeover offer. This obligation is on-going unless
otherwise terminated.
5.2.3.
BT has also agreed to advise the Trustee should there be other
material corporate events which may impact BT's covenant to the
Scheme. This obligation is on-going unless otherwise
terminated.
5.3. Negative pledge
5.3.1.
Continuation of the protection that future creditors will not be
granted superior security to the Scheme in excess of a £1.5bn
threshold, to cover both British Telecommunications plc and BT
Group plc. This provision applies until the deficit reduces to
below £2.0bn at any subsequent funding valuation.
ENDS
The
person responsible for making this announcement is Dan Fitz, BT's
Company Secretary.
For further information:
Enquiries
about this news release should be made to the BT Group Newsroom 020
7356 5369. From outside the UK dial + 44 20 7356 5369. All
news releases can be accessed at our website. You
can also subscribe to receive all BT announcements here and you
can follow us on Twitter here.
About BT
BT's
purpose is to use the power of communications to make a better
world. It is one of the world's leading providers of communications
services and solutions, serving customers in 180 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 of four
customer-facing units: Consumer, Enterprise, Global Services and
Openreach.
For the
year ended 31 March 2018, BT Group's reported revenue was
£23,723m with reported profit before taxation of
£2,616m.
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
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BT Group plc
(Registrant)
By: /s/
Dan Fitz, Company Secretary
--------------------
Dan
Fitz, Company Secretary.
Date
10 May 2018