BT 2009 Annual Report Download - page 44

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
42 BT GROUP PLC ANNUAL REPORT & FORM 20-F
BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
We believe it is appropriate to show the sub-total ‘Total assets less
current liabilities’ of £19,922m at 31 March 2009 (2008:
£19,648m) in the group balance sheet because it provides useful
financial information being an indication of the level of capital
employed at the balance sheet date, namely total equity and non
current liabilities.
BT Group plc, the parent company, whose financial statements
are prepared in accordance with UK GAAP, had profit and loss
reserves (net of the treasury reserve) of £9,761m at 31 March
2009, compared with £10,513m at 31 March 2008.
Capital expenditure
Capital expenditure is a measure of our expenditure on property,
plant and equipment and software. It excludes the movement on
capital accruals and any assets acquired through new acquisitions in
a year. Capital expenditure totalled £3,088m in 2009 compared
with £3,339m and £3,247m in 2008 and 2007, respectively. The
reduction in expenditure in 2009 reflects a reduction in
expenditure on exchange equipment and reduced provisioning
volumes in Openreach due to a lower level of house moves and
reduced LLU volumes from other CPs. This has been partly offset by
increased expenditure on 21CN. The increased expenditure in 2008
related to investment in the creation of re-useable capabilities for
major contracts and up front capital expenditure associated with
contract wins at the end of the year. 21CN expenditure was higher
than 2007 and included equipment deployment, customer site
readiness as well as customer migration. 21CN expenditure is
mainly reflected in other network equipment. The additional
expenditure on 21CN has been partially offset by reduced spend on
legacy equipment, including transmission and exchange
equipment. Capital expenditure is expected to reduce to around
£2.7bn in 2010.
Of the capital expenditure, £316m arose outside of the UK in
2009, unchanged from the £316m in 2008. Contracts placed for
ongoing capital expenditure totalled £451m at 31 March 2009.
Acquisitions
The total consideration for acquisitions in 2009, was £186m.
Goodwill arising on acquisitions made in 2009 was £131m.
The acquisition of Stemmer GmbH and SND GmbH was
completed by BT Global Services in July 2008 for a total
consideration of £13m. Net of cash acquired, the net cash outflow
was £12m. The provisional fair value of net assets at the date of
acquisition was £3m, giving rise to goodwill of £10m. No other
acquisitions were made by BT Global Services in the year.
BT Retail made two acquisitions in the year, Wire One Holdings
Inc and Ufindus Ltd, for total consideration of £98m. Net of cash
acquired, the net cash outflow in respect of these acquisitions was
£95m. The fair value of net assets acquired was £24m, giving rise
to goodwill of £74m.
BT Design made two acquisitions in the year, Ribbit Corporation
and Moorhouse Consulting Ltd, for total consideration of £75m.
Net of deferred consideration and cash acquired, the net cash
outflow in respect of these acquisitions was £60m. The provisional
fair value of the combined net assets at the date of acquisition was
£28m, giving rise to goodwill of £47m.
The total consideration for acquisitions in 2008 was £477m.
The acquisition of Comsat completed in June 2007 for a total
consideration of £130m. Net of deferred consideration and cash
acquired, the net cash outflow was £122m. The fair value of
Comsat’s net assets at the date of acquisition was £57m, giving rise
to goodwill of £73m. Other acquisitions made by BT Global Services
in 2008, for a total consideration of £276m, include Frontline,
Technologies Corporation Limited, i2i Enterprise Private Limited and
Net 2S SA (a company which changed its name to BT Services SA on
1 April 2009). Net of deferred consideration and cash acquired, the
net cash outflow in respect of these acquisitions was £187m. The fair
value of the companies’ net assets at the various dates of acquisition
was £82m, resulting in goodwill of £194m.
Acquisitions made by BT Retail in 2008, for a total consideration
of £71m, include Lynx Technology, Basilica and Brightview. Net of
deferred consideration and cash acquired, the net cash outflow was
£60m. The provisional fair value of the companies’ net assets at the
various dates of acquisition was £24m, giving rise to goodwill of
£47m.
Return on capital employed
The adjusted return on the average capital employed was 15.1%
for 2009. In 2008 and 2007 we made an adjusted return of 17.7%
and 17.6%, respectively. On a reported basis, the return on the
average capital employed was 2.9% for 2009 (2008: 14.4%,
2007: 16.5%).
Pensions
Detailed pensions disclosures are provided in note 29 to the
consolidated financial statements. At 31 March 2009, the IAS 19
accounting deficit was £2.9bn, net of tax, compared with a surplus
of £2.0bn at 31 March 2008. The deterioration in asset values from
£37.4bn at 31 March 2008 to £29.3bn at 31 March 2009
principally reflects the decline in global financial markets during the
year. During the year the investment management de-risking
activities have continued and this has further reduced the
proportion of funds invested in equities from 45% to 31%.
During the year we conducted a review of our UK pension
arrangements, including extensive consultation with the trade unions
and employees. The aim of the review was to ensure the schemes
remain flexible, fair and sustainable for the long-term. Changes to
the future benefit accruals under the BTPS were effective from 1 April
2009 and benefits built up before this date are protected and remain
linked to final pensionable salary. The changes include increasing the
normal retirement age to 65, changing to a career average revalued
earnings basis, changes to member contributions and ceasing to
contract out of the State Second Pension. We expect these changes
will reduce regular cash contributions, net of increased National
Insurance Contributions, by about £100m per annum.
The number of retired members and other current beneficiaries in
the BTPS has been increasing in recent years. Consequently, our
future pension costs and contributions will depend on the
BUSINESS AND FINANCIAL REVIEWS