BT 1999 Annual Report Download - page 34

FINANCIAL REVIEW
33
of these accelerated payment arrangements will be to
increase the tax payments to be made by the group in
the 2000 to 2002 financial years, notwithstanding the
reduction in the standard rate of corporation tax to 30%
for these years.
Net cash inflow of £1,046 million from capital expenditure
and financial investment in the 1999 financial year mainly
comprises the £4,159 million proceeds of the MCI shares
sold in September 1998 offset by expenditure on plant,
equipment and property totalling £3,220 million. This net
cash inflow compares with outflows of £3,108 million in the
1998 financial year and £2,820 million in the 1997 financial
year, which were principally for capital expenditure.
The net cash outflow on acquisitions totalled £1,967 million
in the 1999 financial year, the principal part of which was
the acquisition of MCI’s minority interest in Concert, the
investment in LG Telecom and Binariang as well as
additional funding of the European ventures discussed
below. The group’s investment in Cegetel in September
1997 represented the main part of the net cash outflow
of £1,501 million for the 1998 financial year.
Equity dividends paid in the 1999 financial year totalled
£1,186 million. Those paid in the 1998 financial year
amounted to £3,473 million and included the special
dividend of £2,244 million in September 1997. In the 1997
financial year, dividends of £1,217 million were paid.
The resulting cash inflow, before liquid resources and
financing, of £2,972 million in the 1999 financial year was
mainly applied by investing in short-term investments. In
the 1998 financial year, there was a resulting cash outflow of
£4,052 million. This was financed by the issue of new loans,
principally two Eurobonds totalling US$2,500 million, and
by using the group’s existing short-term investments. In the
1997 financial year, the group had a positive net cash inflow
before financing of £638 million.
The cash inflow for the 1999 financial year, generated mainly
by the MCI share sale proceeds, resulted in net debt falling
to £953 million at 31 March 1999. This was after the high
cash outflow in the 1998 financial year caused by the special
dividend payment and the investment in Cegetel which had
resulted in net debt rising to £3,977 million at 31 March 1998.
Consequently, balance sheet gearing or the ratio of net debt
(borrowings net of cash and short-term investments) to
shareholders’ equity and minority interests stood at 6.3% at
31 March 1999, compared with 36% a year earlier.
In the 1999 financial year, the group repaid long-term debt
totalling £457 million; no significant new long-term debt
needed to be raised. In the 1998 financial year, the group
borrowed £1,637 million in long-term loans and repaid
£338 million in long-term debt. BT issued a US$1.5 billion
five year 63⁄4% Eurobond in April 1997 and a US$1.0 billion
ten year 7% Eurobond in May 1997 in preparation for the
group’s cash requirements later in 1997.
On 18 May 1999, BT issued a £600 million 5.75% Eurobond
repayable in 2028. In the 2000 financial year, £575 million
of long-term debt falls due. We expect to fund this by
liquidating short-term investments or refinancing it with
further debt, as appropriate.
Treasury policy
The group has a centralised treasury operation. Its primary
role is to manage liquidity, funding, investment and the
group’s financial risk, including risk from volatility in
currency and interest rates and counterparty credit risk.
The treasury operation is not a profit centre and the
objective is to manage risk at optimum cost.
The Board sets the treasury department’s policy and its
activities are subject to a set of controls commensurate with
1999 1998 1997
£m £m £m
)))!!
!!!005111111101
Net cash inflow from
operating activities 6,035 6,071 6,185
Dividends from ventures 25 7
Net cash outflow for
returns on investments
and servicing of finance (328) (160) (220)
Tax paid (630) (1,886) (1,045)
Net cash inflow (outflow)
for capital expenditure and
financial investment 1,046 (3,108) (2,820)
Net cash outflow for
acquisitions and
disposals (1,967) (1,501) (252)
Equity dividends paid (1,186) (3,473) (1,217)
00011!!!005111111101
Cash inflow (outflow)
before management
of liquid resources
and financing 2,972 (4,052) 638
Management of liquid
resources (2,447) 2,247 (504)
Net cash inflow (outflow)
from financing (458) 1,794 (224)
00011!!!005111111101
Increase (decrease)
in cash in the year 67 (11) (90)
00011!!!005111111101
Decrease (increase)
in net debt in the year 3,146 (3,860) 849
00011!!!005111111101