BT 1998 Annual Report Download - page 23

F I N A N C I A L R E V I E
with £2,719 million in the 1997 financial year and
£2,771 million in the 1996 financial year. There has been
an increased emphasis on enhancing the intelligence of
the network to enable customers to benefit from advanced
services and improving the network’s capacity for carrying
high-speed data. Additionally, Cellnet has continued
expanding its digital cellular GSM network.
The group expects capital expenditure in the 1999 financial
year to be at a level similar to that of the 1998 financial year.
BT expects that future capital expenditure will be provided
from net cash inflows from operating activities
supplemented, if appropriate, by external financing.
Acquisitions and joint ventures
The group has invested over £1,650 million in the
1998 financial year on acquiring interests in associated
c o m p a n i e sa n do t h e ri n v e s t m e n t sa n d p ro v i d i n g t h e i rf u rt h e r
f u n d i n g .T h em o s t s i g n i f i c a n ti n v e s t m e n tw a st h ec o m p l e t i o n
in September 1997 of the group’s acquisition of a 26%
interest in Cegetel for a total of £1,029 million. Cegetel,
the second French telecommunications operator, has an
80% interest in SFR, a leading mobile provider in France.
Over £400 million has been invested in other European
telecommunications companies in the year, primarily in
Germany, Spain and the Netherlands. The goodwill arising
on all of these acquisitions amounted to £869 million out of
at o t a lo f £ 9 3 7m i l l i o n , w h i c hh a sb e e n w r i t t e no ff t o re s e rv e s .
In the previous financial year, the group acquired the
Rijnhaave group, a Netherlands-based systems integration
business in April 1996 and, in March 1997, completed the
formation of Telfort, a joint venture with NS, the Dutch
railways company, to offer telecommunication services in
that country. In February 1997, BT agreed to acquire the
50% interest in its Spanish joint venture it did not already
own, thereby obtaining full control; this transaction was
completed in July 1997. The goodwill arising on these
acquisitions amounted to £166 million; the remaining
goodwill taken to reserves in the 1997 financial year of
£33 million mainly related to BT’s share of goodwill
arising on MCI’s acquisitions, principally on its joint
venture in Mexico.
Return on capital employed
The group made a return of 19.3% on the average capital
employed, on a historical cost basis, in its business in the
year ended 31 March 1998, compared with returns of 18.9%
and 18.3% in the two previous years.
Pensions
An actuarial valuation of BT’s main pension fund as at
31 December 1996 was completed during the 1998 financial
year. This valuation revealed the fund to be in surplus to an
amount of approximately £66 million, with assets of the
fund at £19,879 million at that date covering just over 100%
of the fund’s liabilities, in contrast to an asset coverage of
97% at 31 December 1993. The improvement in the funding
position principally arose from the strong return on the
fund’s assets in the three intervening years more than
outweighing the impact of redundancies on the fund.
The actuarial valuation took into account the effect of the
Government’s measures in July 1997 to end pension funds’
ability to reclaim the tax credit associated with UK
companies’ dividends. Without this measure the surplus
in the fund would have been significantly higher.
From 1 April 1997, the annual pension charge was based
on the December 1996 valuation and was £114 million lower
than the charge of £291 million in the 1997 financial year.
This revised charge took into account the amount of the
pension provision which had been established over recent
years in the group’s accounts and which stood at
£1,224 million at 31 March 1998. Additionally, under UK
accounting standards, the cost of providing incremental
pension benefits for early leavers has no longer been
charged against the profit in the period in which people
leave, since the latest actuarial valuation of the pension
fund indicates a surplus.
The actuarial valuation confirmed that the group’s
contribution into the fund should continue at 9.5% of
employees’ pensionable pay.
% return on capital
employed
94 95 96 97 98