Booming stock markets have sent BT's pension fund into a £1 billion surplus, further dimming the chances of the taxpayer being called on to stump up for a shortfall if the telecoms group collapses into bankruptcy.

This came as BT unveiled a £2.5 billion capital return to shareholders — at least £500 million higher than the nearest estimate — and brought its dividend policy forward by a year. Annual profits came in just shy of £2.5 billion, up 15 per cent to a record, on revenues of £20.2 billion. And the dividend rose by 27 per cent to 15.1 a share.

BT described it as a "bumper day for shareholders".

The group's mammoth pension fund, which once threatened to tip it into insolvency and is currently the subject of fierce debate about a state guarantee, moved back into the black only last month. At the group's year end in March, the deficit was still £400 million.

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BT will have to stay on it's toes in the tough new world of convergence

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A spokesman for BT confirmed that it had gone into talks with the Department for Trade and Industry over the so-called "crown guarantee" of the fund that was instigated in 1987 at privatisation. However, he said that given the health of both the group and the fund, it was seen as "something of a red herring" by the company.

BT will fund the £2.5 billion shareholder cashback out of its debt, which could put pressure on its investment grade credit rating. A group's rating helps dictate how much it has to pay to borrow.

BT said it was confident it could maintain a strong credit rating, but it was up to the rating agencies to decide. The firm was not in the business of having its policy over a cash return dictated by others, the spokesman said.

The profits and the pensions surplus show how far BT has come since it laboured under a pensions deficit of more than £9 billion, had debts of £30 billion and fell out with rating agency Moody's over threats its rating might be cut to "junk".

BT has reinvented itself as a provider of corporate or "Networked IT" and telephony services as well as broadband products and "new wave" services for households and businesses. Sir Christopher Bland, the chairman, said: "BT has come a long way in the past five years."

Ben Verwaayen, the chief executive, reported that revenues from BT's traditional business of renting landline phones to individuals fell 3 per cent, but boasted that with 10 million customers it was now the No 1 supplier of broadband services.

BT said that a further restructuring unveiled last month that brings together design, operations, IT and networks into two business units will cost £450 million. This will generate a payback within three years, it said.

Jim McCafferty, the head of research at Seymour Pierce said that the dividend payout was "cracking". He said: "This places BT as the fourth highest yielding stock in the FTSE 100 yet the company has produced 11 per cent earnings growth. We see this combination of strong earnings growth and a high level of absolute dividend and dividend growth as a quality which should command a higher rating.

Mr McCafferty suggested 377p.

The shares lost 5.25p to 310p. BT is valued by the market at more than £26 billion.

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