Telecoms giant BT Group (NYSE:BT) has revealed it will pump £2bn into its ballooning £7bn pension deficit.
Following a triennial review the group said it will pour the £2bn into its pension scheme over the next three years to pay down a £7bn deficit, which has almost doubled since 2012.
As part of a 16-year recovery plan BT will pay £1.5bn by the end of April 2015 out of existing cash and current investment balances, which totalled £2.8bn at 31 December 2014. This will be followed by £250m in each of the years to March 2016 and March 2017.
These payments are significantly below the £2.6bn BT paid into the scheme the last three years.
Tony Chanmugam, BT group finance director, said: "This agreement is a good outcome for the scheme's 300,000 members and BT. The increase in the deficit reflects the low interest rate environment. The recovery plan reflects the strength and sustainability of our future cash flow generation."
The group, whose shares dipped 6.75p to 422.5p in early trading, also posted higher profits boosted by surging demand for broadband and televised football.
BT said reported pre-tax profits rose 12 per cent to £694m in its third quarter to December 31, despite revenues falling three per cent to £4.5bn.
It said a £49m hit from foreign exchange movements, a £26m reduction in transit revenue and a £3m impact from disposals had hurt revenues.
However profits had been helped by a five per cent decrease in operating costs to £2.9bn. Its debt dropped to £6.2bn, down £1.4bn from last year.
BT consumer revenue grew seven per cent to just over £1bn over the period, driven by growth in broadband and TV in which it has invested large sums to show sport, such as Premier League football.
It added 209,000 retail fibre broadband customers over the period, taking its total user numbers to over 2.7m.
It added 45,000 TV customers, with Premier League audience figures on BT Sport up 17 per cent so far this season.
Gavin Patterson, chief executive, said: “This quarter we have delivered good growth in profit before tax. 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.”
It said it was set to start upgrading its fibre broadband network to reach “ultrafast” speeds of up to 500mb to millions of homes and businesses by 2020. Pilots of its new “G.fast” service will begin this summer.
Patterson added: “The UK is ahead of its major European neighbours when it comes to broadband and we need to stay ahead as customer demands evolve. BT has been at the forefront of fibre innovation and investment. We aim to keep it that way.”
In addition, Patterson said the group was making “good progress” on its proposed £12.5bn acquisition of mobile firm EE.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “BT continues to make progress on a number of fronts. Its plan to address the pension deficit, which has been a cloud over the shares for some time, shows long-term confidence in its ability to maintain high levels of cash generation.
“Less positively sector competition remains ferocious and the current discussions on the renegotiation of Premier League TV rights could prove costly.”