BT 2009 Annual Report Download - page 40

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
38 BT GROUP PLC ANNUAL REPORT & FORM 20-F
BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
The specific items set out below did not impact 2009, but were
recognised in the comparative years.
A £64m charge in 2007 incurred in respect of property
rationalisation costs.
Charges of £53m in 2008 and £30m in 2007, were recognised in
relation to further estimated costs required to create Openreach
and deliver the Undertakings agreed with Ofcom, particularly
with regard to the introduction of equivalence of input systems.
Charges of £74m in 2008 and £65m in 2007 were recognised as
a result of the completion of a review of circuit inventory and
other working capital balances.
Profit on the sale of associates of £9m in 2008 and £22m in
2007. In 2008, the £9m profit arose from the receipt of
contingent consideration from the disposal of the group’s
interest in e-peopleserve. In 2007, the £22m profit arose from
the disposal of 6% of the group’s equity interest in the associate
Tech Mahindra Limited.
In 2008, the group agreed an outstanding tax matter relating to
a business disposed of in 2001, the impact of which was a tax
credit of £40m, and this closed all open items in relation to the
settlement reached in 2007. In 2007, the group agreed the
settlement of substantially all open UK tax matters relating to ten
tax years up to and including 2004/05 with HM Revenue and
Customs (HMRC). In 2007, the total impact of the settlement was
a net credit of £1,067m, comprising a tax credit of £938m
representing those elements of the tax charges previously
recognised which were in excess of the final agreed liability,
interest income of £139m and operating costs of £10m,
representing the costs associated with reaching this agreement.
A tax credit of £154m was also recognised in 2008 for the re-
measurement of deferred tax balances as a result of the change
in the UK statutory corporation tax rate from 30% to 28%,
effective in 2009.
Net finance expense
2009 2008 2007
£m £m £m
Interest on borrowings 935 822 728
Loss arising on derivatives
not in a designated
hedge relationship 29 41 4
Interest on pension
scheme liabilities 2,308 2,028 1,872
Total finance expense 3,272 2,891 2,604
Income from listed
investments – – (7)
Other interest and
similar income (31) (65) (72)
Expected return on pension
scheme assets (2,621) (2,448) (2,292)
Total finance income (2,652) (2,513) (2,371)
Analysed as:
Net finance expense before
specific items and pensions 933 798 653
Interest associated with
pensions (313) (420) (420)
Net finance expense before
specific items 620 378 233
Specific items – – (139)
Net finance expense 620 378 94
In 2009, net finance expense before specific items was £620m
(2008: £378m, 2007: £233m). The net finance income associated
with the group’s defined benefit pension obligation of £313m was
£107m lower than in 2008, which in turn was at the same level as
in 2007. The interest on pension scheme liabilities and expected
return on pension scheme assets reflects the IAS 19 assumptions
and valuation as at the start of the financial year. This is expected to
be a net interest cost of about £275m in 2010 as a result of the
significant reduction in asset values during 2009.
Interest on borrowings was £935m in 2009 (2008: £822m,
2007: £728m). The increase of £113m in 2009 reflects higher net
debt mainly due to lower free cash flow being exceeded by
dividend and share buy back payments. The increase in 2008 of
£94m reflects higher net debt and higher interest rates on variable
rate borrowings. Losses arising on derivatives not in a designated
hedge relationship was £29m in 2009 (2008: £41m, 2007: £4m).
In 2008, losses on derivatives not in a designated hedge
relationship of £41m included a charge of £26m on a low cost
borrowing transaction which was marginally earnings positive after
tax in the year.
BUSINESS AND FINANCIAL REVIEWS