BT 2000 Annual Report Download - page 39

Financial review
38 Annual report and Form 20-F
Kong, a leading provider of digital mobile communications
services, for »241 million.
Under an agreed o¡er made in January 2000 and
separate transactions with two of its major shareholders,
we acquired control of Esat Telecom Group (Esat) at the
end of March 2000, following regulatory clearance, for a
consideration of »1,520 million. We paid the majority of
the consideration in April 2000 after the ¢nancial year end.
This leading Irish communications group holds a
49.5%interest in Esat Digifone, Ireland's second largest
mobile phone operator. We acquired a further 1% in this
company in January 2000, so it also became part of the BT
group at the end of March 2000. Telenor, the Norwegian
communications operator, is the other shareholder in Esat
Digifone, with a 49.5% interest. BT has agreed with
Telenor to allow it to exchange its interest in Esat Digifone
for a 33% interest in Esat and also to purchase from us
such additional shares in that group as would give Telenor
an almost 50% interest in Esat at a total price of US$624
million plus interest. If Telenor does not exchange its
interest in Esat Digifone in this way, we will purchase its
interest for US$1,238 million. We expect Telenor to decide
its course of action during the 2001 ¢nancial year.
In the 1999 ¢nancial year, BT acquired from MCI its
24.9% interest in Concert Communications for »607 million.
Goodwill of »568 million arose on this transaction. As
explained above, Concert Communications was transferred
to the global venture with AT&T in early January 2000.
In March 1999, the group, through its then 60%-owned
subsidiary BT Cellnet, completed the acquisition of Martin
Dawes Telecommunications Holdings (MDT) (renamed
BT Cellnet Lumina), then the largest independent mobile
telecommunication services provider in the UK. The
consideration totalled approximately »130 million, of which
»90 million was deferred. In December 1999, an additional
»27 million was paid in acquiring a minority interest in
MDT's main operating subsidiary. Goodwill of »186 million
arose on this combined acquisition and is being amortised
over 10 years.
The group invested »1,326 million in the 1999
¢nancial year on acquiring interests in associates and joint
ventures and providing their further funding. The most
signi¢cant investments were made in October 1998 in the
Asia-Paci¢c region. A 33.3% stake in Maxis
Communications (formerly Binariang) of Malaysia was
acquired for »279 million and a 23.5% interest in LG
Telecom in the Republic of Korea was acquired for
»234 million. The goodwill element of these acquisitions is
being amortised over 20 years under the group's new
accounting policy for goodwill adopted from the beginning
of the 1999 ¢nancial year. BT continued to share in
funding the development of its ventures, principally Viag
Interkom of Germany (»482 million) and Telfort of the
Netherlands (»103 million), in the ¢nancial year.
In the 1998 ¢nancial year, the group invested over
»1,650 million in acquisitions and further funding.
In September 1997, the group completed its acquisition
of a 26% interest in Cegetel of France for a total of
»1,029 million. Over »400 million was 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 a total of »937 million, which was
written o¡ to reserves under the UK accounting policy in
operation for that and preceding years.
In March 2000, we announced that we would be taking
an equity interest, jointly with Japan Telecom, in a number
of regional Japanese mobile phone companies (J-Phone
Communications). These companies are planning to build
out their third generation cellular networks and we shall
participate in the ¢nancing of this capital investment.
In April 2000, we announced that we would acquire
for »1.2 billion our partner's interest in Telfort, the
communications joint venture which we established in the
Netherlands in 1997.
Return on capital employed
The group made a return
before goodwill amortisation
of 18.2% on the average
capital employed in its
business excluding goodwill,
on a historical cost basis, in
the 2000 ¢nancial year,
compared with returns of
19.2% and 19.5% in the
1999 and 1998 ¢nancial
years, respectively.
Pensions
The most recently completed actuarial valuation of the
BT Pension Scheme (BTPS), BT's main pension fund, was
carried out as at 31 December 1996. This valuation
revealed the fund to be in surplus to an amount of
approximately »66 million. Assets of the fund at
»19,879 million at that date covered just over 100% of the
fund's liabilities. This actuarial valuation took into account
the e¡ect of HM Government's measures in July 1997 to
end pension funds' ability to reclaim the tax credit
associated with UK companies' dividends.