BT 2009 Annual Report Download - page 45

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
BUSINESS AND FINANCIAL REVIEWS
43BT GROUP PLC ANNUAL REPORT & FORM 20-F
BUSINESS AND FINANCIAL REVIEWS FINANCIAL REVIEW
investment returns of the pension fund and life expectancy of
members and could fluctuate in the medium-term.
The BTPS was closed to new entrants on 31 March 2001 and
people joining BT after that date can participate in a defined
contribution pension arrangement which provides benefits based
on the employees’ and the employing company’s contributions.
BT and the Trustee of the BTPS have agreed that deficit
contributions of £525m per annum will be made in cash or in
specie over the next three years. This agreement has been
approved by the Pensions Regulator.
BT and the Trustee have also reached an advanced stage in the
completion of the triennial funding valuation, being prepared by the
scheme’s independent actuary, as at 31 December 2008. As the
parties are at an advanced stage compared to other scheme valuations
and given the uncertain market conditions, the Pensions Regulator has
indicated it wishes to discuss with the Trustee and BT the underlying
assumptions and basis of the valuation. The Pensions Regulator has
requested that the valuation and assumptions are not finalised or
disclosed in advance of the completion of those discussions. BT, the
Trustee and the Pensions Regulator are keen to complete this as soon
as practicable.
The previous valuation was carried out as at 31 December 2005
which showed the fund was in deficit by £3.4bn. The deficit payments
of £280m per annum agreed in respect of the previous valuation have
now been replaced by the agreement to pay £525m per annum over
the next three years.
The group is paying a regular contribution rate of 19.5% of
pensionable pay, of which 6% to 7% is payable by employees.
Capital management
The primary objective of the group’s capital management policy is
to target a solid investment grade credit rating whilst continuing to
invest for the future and, with an efficient balance sheet, further
enhance the return to shareholders. In order to meet this objective,
the group may issue new shares, repurchase shares, adjust the
amount of dividends paid to shareholders, or issue or repay debt.
The group manages the capital structure and makes adjustments to
it in the light of changes in economic conditions and the risk
characteristics of the group. The Board regularly reviews the capital
structure. No changes were made to these objectives, policies and
processes during 2009 and 2008.
The group’s capital structure consists of net debt, committed
facilities and similar arrangements and shareholders’ equity
(excluding the cash flow reserve). The following analysis
summarises the components which are managed as capital:
2009 2008
£m £m
Total parent shareholders’ (deficit) equity
(excluding cash flow reserve) (421) 5,252
Net debt (see note 10) 10,361 9,460
Undrawn committed facilities
(see note 33) 2,300 2,335
12,240 17,047
The Board reviews the group’s dividend policy and funding
requirements at least annually. The Board is committed to
delivering attractive returns for shareholders and believes that the
operational improvements in the business will generate sufficient
cash flow to allow the dividend to grow at the same time as
investing in the business, reducing debt and supporting the
pension scheme.
During 2008, the group commenced a £2.5bn share buy back
programme, which was expected to be completed by 31 March
2009. However, in July 2008, the Board suspended this
programme as a result of the group’s strategic investment in fibre
deployment. During 2009, 143m shares for cash consideration of
£334m were repurchased. During 2008 and 2007, 540m and
148m shares were repurchased for cash consideration of £1,498m
and £400m, respectively.
The general policy is to raise and invest funds centrally to meet
anticipated requirements using a combination of capital market
bond issuance, commercial paper borrowing backed up by
committed borrowing facilities and investments. These financial
instruments vary in their maturity in order to meet short, medium
and long-term requirements. In June 2008, £795m of long-term
funds were raised and in March 2009 the group renewed £800m of
its 364 day facility with a one-year term out. A further £100m was
agreed after the balance sheet date.
At 31 March 2009 the group had financial assets of £7.3bn
consisting of current and non current investments, derivative
financial assets, trade and other receivables, cash and cash
equivalents. Credit exposures are continually reviewed and
proactive steps have been taken to ensure that the impact of the
current adverse market conditions on these financial assets is
minimised. In particular, line of business management have been
actively reviewing exposures arising from trading balances and, in
managing investments and derivative financial instruments, the
centralised treasury operation has continued to monitor the credit
quality across treasury counterparties and is actively managing
exposures which arise.
At 31 March 2009, the group’s credit rating was BBB with stable
outlook with Standard and Poor’s and Baa2 with negative outlook
with Moody’s (2008: BBB+/Baa1, both with stable outlook). After
the balance sheet date, Fitch changed the group’s credit rating to
BBB with a stable outlook (2008: BBB+ with a stable outlook).
Capital resources
The Business review and Other Matters sections on pages 8 to 31
includes information on the group structure, the performance of
each of the lines of business, the impact of regulation and
competition, principal risks and uncertainties and the group’s
outlook. This Financial review section on pages 32 to 48 includes
information on our financial position, cash flows, liquidity position,
borrowing position and the group’s objectives, policies and
processes for capital management. Notes 9, 10, 13, 16, 17 and 33
of the Consolidated Financial Statements include information on
the group’s investments, derivatives, cash and cash equivalents,
borrowings, financial risk management objectives, hedging policies