BT 2003 Annual Report Download - page 46

Balance sheet
Net assets at 31 March 2003 amounted to
£2,642 million compared to a deficit of £358 million at
31 March 2002, with the increase principally due to the
retained profits of £2,126 million.
BT Group plc, the parent company, has maintained
reserves at £9,537 million at both 31 March 2003 and
31 March 2002.
BT’s fixed assets totalled £16,661 million at
31 March 2003 of which £15,888 million were tangible
assets, principally forming the UK fixed network. At
31 March 2002 fixed assets were £17,551 million and
tangible assets were £16,078 million. The reduction in
fixed assets is principally due to the group’s exit from
non core investments as a result of which investments
have reduced by £666 million to £555 million at
31 March 2003.
Return on capital employed
The return before goodwill amortisation and
exceptional items on the average capital employed
(total assets, excluding goodwill, less current liabilities,
excluding corporate taxes and dividends payable, and
provisions other than those for deferred taxation) was
15.7% for the 2003 financial year. In the 2002
financial year the group made a return from continuing
activities before goodwill amortisation and exceptional
items of 15.7% on the average capital employed in its
business excluding mmO
2
and goodwill. In the 2001
financial year, the group made a return on all activities
before goodwill amortisation and exceptional items
of 14.9%.
Pensions
The most recently completed triennial actuarial
valuation of the BT Pension Scheme (BTPS), BT’s main
pension fund, performed by the scheme’s independent
actuary for the trustees of the scheme, was carried out
as at 31 December 2002. This valuation showed the
fund to be in deficit to an amount of £2.1 billion.
Assets of the fund of £22.8 billion at that date covered
92% of the fund’s liabilities. The previous valuation
was carried out as at 31 December 1999. The result
of this valuation was that the fund was in deficit by
£1.0 billion. Assets of the fund of £29.7 billion at
that date covered 97% of the fund’s liabilities.
The deterioration in the funding position was
principally the result of lower equity returns over
the last three years and improved life expectancy
of scheme members and is in spite of the additional
deficiency funding payments totalling £600 million that
have been paid over the last three years. The valuation
under the prescribed Minimum Funding Requirement
approach showed the assets to cover 101% of the
liabilities at 31 December 2002.
The group’s ordinary contribution rate will increase
to 12.2% of employees’ pensionable pay with effect
from April 2003. The contribution rate was 11.6% for
the 2003, 2002 and 2001 financial years. In addition,
the company will make annual deficiency contributions
to the scheme of £232 million with effect for the 2004
financial year. This compares to the £200 million
annual deficiency payments made in the 2003, 2002
and 2001 financial years. The group is also required to
pay special contributions to cover costs arising from
enhanced pension benefits provided to leavers. The
special contributions paid in the 2003, 2002 and 2001
financial years amounted to £129 million, £400 million
and £100 million, respectively, in respect of early
leavers. The payment expected to be made in
December 2003 is £100 million in relation to leavers
in the calendar year ended 31 December 2002.
The group continues to account for pension costs
in accordance with UK Statement of Standard
Accounting Practice No. 24 (SSAP 24). The group’s
total annual pension charges, including discontinued
activities, for the 2003, 2002 and 2001 financial years
were £322 million, £382 million and £326 million,
respectively. This includes £314 million, £373 million
and £315 million, respectively, in relation to the BTPS.
The reduction in the pension charge in the 2003
financial year reflects the lower membership of the
BTPS and the interest credit on the balance sheet
prepayment. The increase in the pension charge in
the 2002 financial year was due principally to the
£46 million charge for enhanced pension benefits
provided to leavers.
Under the UK accounting standard SSAP 24,
and BT’s accounting policy, if the costs of providing
incremental pension benefits for leavers are less than
the total accounting surplus based on the latest
actuarial valuation of the scheme and the amount of the
provision for pension liabilities on the balance sheet,
the costs are not charged to the profit and loss
account. In the 2001 financial year the cost of the
incremental benefits was charged against the
accounting surplus and was not charged against the
profit in the period in which people agreed to leave. In
the 2003 and 2002 financial years the total cost of the
incremental pension benefits exceeded the total
accounting surplus and accordingly the excess was
charged to the profit and loss account. This amounted
to £60 million and £46 million in the 2003 and 2002
financial years, respectively.
The pension charge for the 2004 financial year will
be based upon the SSAP 24 valuation as at 31 March
2003. This valuation is based on the December 2002
funding valuation, rolled forward to 31 March 2003,
and uses a slightly higher investment return
assumption than was used for the trustees’ funding
valuation, a lower inflation rate and lower salary
increase assumptions. The resulting SSAP 24 deficit
amounts to £1.4 billion. The regular pension cost will
be charged at 11.3% of pensionable salaries compared
to the 11.6% rate applied in the 2003, 2002 and 2001
financial years. In addition, the pension charge will
include the amortisation of the combined pension fund
position of £1.4 billion and pension prepayment of
£630 million held on the BT group balance sheet, over
the average remaining service lives of members which
amounts to 13 years, and enhanced pension benefits
provided to leavers.
The number of retired members and other current
beneficiaries in the pension fund has been increasing
in recent years and, at 31 December 2002, was
approximately 94% higher than the number of active
Financial review
BT Annual Report and Form 20-F 2003 45