BT 2001 Annual Report Download - page 40

Financial review
The higher total interest charge in the 2000 ¢nancial year
overthepreviousyearwasduetoanincreaseinBT’sshareof
its ventures interest costs and the cost of funding the
acquisitions made by BT during the 2000 ¢nancial year,
including the BT Cellnet minority acquisition.
Interest cover for the 2001 ¢nancial year represented
2.6 times total operating pro¢t before goodwill amortisation
and impairment, and compares with interest cover of 8.8 in the
2000 ¢nancial year and 12.2 in the 1999 ¢nancial year. The
decline in cover is due to the substantial increase in the interest
charge compared with a relatively static operating pro¢t before
goodwill amortisation and impairment. We expect the net
interest charge to further increase and interest cover to decline
in the 2002 ¢nancial year following the signi¢cant increase in
net debt during the 2001 ¢nancial year to be o¡set in part by
the expected proceeds of the rights issue and the sales of
investments already announced.
Profit (loss) and taxation
The group’s loss before taxation for the 2001 ¢nancial year was
»1,031 million, compared with pro¢ts of »2,942 million in the
2000 ¢nancial year and »4,295 million in the 1999 ¢nancial
year. The loss in the 2001 ¢nancial year was principally due to
the »3,200 million exceptional goodwill impairment charges
discussed above. The substantially higher pro¢t in the 1999
¢nancial year was largely due to the gain on the MCI shares
sold. Before exceptional items
and goodwill amortisation,
pro¢t before taxation in the
2001 ¢nancial year of
»2,072 million was 33% lower
than the comparable pro¢t in
the 2000 ¢nancial year. This
was 5.3% lower than in the
1999 ¢nancial year. The
signi¢cantly lower underlying
pro¢t in the 2001 ¢nancial
year was chie£y due to the
higher interest charges,
explained above. The lower pro¢t in the 2000 ¢nancial year
was due to the lower group operating pro¢t and higher interest
charges, also explained above.
Tax relief is not available against the »3,200 million
goodwill impairment charges, and the tax charge of »652 million
for the 2001 ¢nancial year represents 30.1% of pro¢t before
taxation and goodwill impairment. This compares with a tax
charge of 30.5% for the 2000 ¢nancial year and 30.1% for the
1999 ¢nancial year. The 2001 and 2000 e¡ective tax rates compare
with the standard 30% corporation tax rate for those years. The
e¡ective tax rate for the 2001 ¢nancial year has been adversely
a¡ected by the higher goodwill amortisation charges in the year
which are not allowable expenses for tax purposes, partially
o¡set by the gain on the sale of the investment in sunrise
communications which is e¡ectively subject to a lower tax charge.
The group’s tax charge for the 1999 ¢nancial year was an
e¡ective 31.0% of pre-tax pro¢t. The MCI share sale gain was
e¡ectively subject to a lower tax charge under UK capital gains
tax legislation. This e¡ective tax charge re£ects the higher 31%
rate of corporation tax set for the 1999 ¢nancial year.
The minority interests in the results of the 2001 ¢nancial
year of »127 million are primarily attributable to outside
interests in the Japanese investments.
Earnings (loss) and dividends
Basic loss per share, based on the loss for the 2001 ¢nancial
year of »1,810 million, were 27.7 pence. Earnings per share for
the 2000 and 1999 ¢nancial years were 31.7 pence and
46.3 pence, respectively. Earnings before goodwill amortisation
and exceptional items were 20.5 pence per share for the 2001
¢nancial year, in comparison with 34.2 pence for the 2000
¢nancial year and 35.0 pence for the 1999 ¢nancial year.
Diluted earnings per share are not materially di¡erent.
The dividend for the 2001 ¢nancial year of 8.7 pence per
share comprised the interim dividend paid in February 2001
which absorbed »571 million. As part of BT’s debt reduction and
restructuring plans, the Board has decided that there will be no
¢nal dividend in respect of the 2001 ¢nancial year and that there
will be no interim dividend declared for the 2002 ¢nancial year.
Future dividend policy will be decided by the individual listed
companies, taking into account their respective capital structure,
cash requirements and the markets in which they operate. The
board expects that Future BT will recommence a ¢nal dividend
in respect of the 2002 ¢nancial year.
BT paid or recommended dividends of 21.9 pence per share
for the 2000 ¢nancial year and dividends of 20.4 pence per
share in respect of the 1999 ¢nancial year.
Financing
Net cash in£ow from operating activities of »5,887 million in the
2001 ¢nancial year compared with »5,849 million in the 2000
¢nancial year and »6,035 million in the 1999 ¢nancial year.
Special contributions to the main pension fund, described below,
of »300 million in the 2001 ¢nancial year, »230 million in the
2000 ¢nancial year and »200 million in the 1999 ¢nancial year
were paid, consequently reducing the cash in£ow in those years.
40 BT Annual report and Form 20-F