BT 2000 Annual Report Download - page 95

Download and view the complete annual report

Please find page 95 of the 2000 BT annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 129

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129

31. Auditors (continued)
In addition, fees of »6,382,000 were paid or are payable to PricewaterhouseCoopers for the year ended 31 March 2000 in
respect of audit and other services to the company's subsidiary undertakings outside the UK and in respect of other
services to the group. Fees of »6,418,000 were paid to other international members of Coopers & Lybrand, Price
Waterhouse or PricewaterhouseCoopers for the year ended 31 March 1999 in respect of audit and other services to the
company's subsidiary undertakings outside the UK and in respect of other services to the group. Fees of »1,283,000 and
»865,000 were paid for work carried out by Price Waterhouse inside and outside the UK, respectively, between 1 April
and 1 July 1998.
32. Financial instruments and risk management
The group holds or issues ¢nancial instruments mainly to ¢nance its operations; for the temporary investment of short-
term funds; and to manage the currency and interest rate risks arising from its operations and from its sources of ¢nance.
In addition, various ¢nancial instruments --- for example trade debtors and trade creditors --- arise directly from the
group's operations.
The group ¢nances its operations primarily by a mixture of issued share capital, retained pro¢ts, long-term loans and,
increasingly over the year ended 31 March 2000, short-term loans, principally by issuing commercial paper. The group
borrows in the major debt long-term markets in major currencies. Typically, but not exclusively, the bond markets provide
the most cost-e¡ective means of long-term borrowing. The group uses derivative ¢nancial instruments primarily to manage
its exposure to market risks from changes in interest and foreign exchange rates. The derivatives used for this purpose are
principally interest rate swaps, gilt locks, currency swaps and forward currency contracts.
The types of ¢nancial instrument used for investment of short-term funds are prescribed in group treasury policies
with limits on the exposure to any one organisation. Short-term investing in ¢nancial instruments is undertaken on behalf
of the group by external substantial fund managers who are limited to dealing in debt instruments and certain de¢ned
derivative instruments and are given strict guidelines on credit, diversi¢cation and maturity pro¢les.
During the year ended 31 March 2000, net debt increased from »953 million to »8,700 million primarily as a result of
the group making acquisitions of businesses and interests in joint ventures and associates. This increase in debt has been
primarily funded under the group's commercial paper programmes. As a result, BT's borrowing pro¢le has changed during
the year from one at ¢xed rates to one mainly at £oating rates. It is BT's intention to re-¢nance a signi¢cant part of its
existing commercial paper programme borrowings with medium or longer-term debt when market conditions allow.
The group uses ¢nancial instruments to hedge some of its currency exposures arising from its non-UK assets,
liabilities and forward purchase commitments. The group also hedges some of its interest liabilities. The ¢nancial
instruments used comprise borrowings in foreign currencies, forward foreign currency exchange contracts, gilt locks and
interest and currency swaps.
There has been a change in the nature of the group's risk pro¢le between 31 March 2000 and the date of these
¢nancial statements with a further increase in short-term borrowings. This has been due to the funding of approximately
»6 billion, in total, in respect of the UK third generation mobile licence payment on 16 May 2000, the completion of the
Esat acquisition in April 2000 and other non-UK investments. This funding has been ¢nanced within the group's
commercial paper programme.
The notional amounts of derivatives summarised below do not necessarily represent amounts exchanged by the parties
and, thus, are not necessarily a measure of the exposure of the group through its use of derivatives. The amounts exchanged
are calculated on the notional amounts and other terms of the derivatives which relate to interest and exchange rates.
(a) Interest rate risk management
The group has entered into interest rate swap agreements with commercial banks and other institutions to vary the
amounts and periods for which interest rates on borrowings are ¢xed. By swapping ¢xed rates on long-term borrowings
into £oating rates, the group has obtained lower e¡ective £oating-rate borrowings than those available if borrowing
directly at a £oating rate. Under interest rate swaps, the group agrees with other parties to exchange, at speci¢ed intervals,
the di¡erences between ¢xed rate and £oating rate interest amounts calculated by reference to an agreed notional principal
Notes to the financial statements
94 Annual report and Form 20-F