BT 2001 Annual Report Download - page 42

Financial review
We issued »7,219 million of medium term notes in the year.
Commercial paper outstanding decreased by »1,390 million over
the year to 31 March 2001.
In the 2000 ¢nancial year, there was a net cash out£ow of
»7,141 million which was partly funded by the issue of new
long-term ¢nancial instruments, principally two US dollar
Eurobonds totalling US$1.2 billion and a »600 million
Eurobond. In that year, we also drew on commercial paper
programmes under which approximately »4.9 billion was
outstanding at 31 March 2000 and used the group’s existing
short-term investments. In the 1999 ¢nancial year, a net cash
in£ow, before liquid resources and ¢nancing, of »2,972 million
wasmainlyappliedbyinvestinginshort-terminvestments.
The cash out£ow for the 2001 ¢nancial year resulted in net
debt increasing to »27,942 million at 31 March 2001. In the
previous ¢nancial year, the cash out£ow for the year resulted
in net debt increasing to »8,700 million at 31 March 2000. This
was in contrast to the cash in£ow for the 1999 ¢nancial year,
generated mainly by the MCI share sale proceeds, which
resulted in net debt falling to »953 million at 31 March 1999.
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 192% at
31 March 2001, compared with 53% a year earlier.
In the 2001 ¢nancial year, the group borrowed »14,552
million in long-term loans and repaid »225 million in long-term
debt. This was in accordance with our intention, expressed at
the end of the 2000 ¢nancial year, to re¢nance a signi¢cant
part of our commercial paper borrowings with medium or
longer-term debt when market conditions allowed and also to
raise further signi¢cant ¢nance in the 2001 ¢nancial year to
meet the ¢nancing needs of the UK third-generation licence,
won in April 2000, increased capital expenditure and
acquisitions of interests in subsidiaries, joint ventures and
associates and their additional funding requirements.
In April 2000, BT issued a »250 million 3.5% index-linked
Eurobond repayable in 2025. In December 2000, we issued four
series of notes comprising US$2.8 billion 8.625% thirty-year
notes, US$3.0 billion 8.125% ten-year notes, US$3.1 billion
7.625% ¢ve-year notes and US$1.1 billion three-year £oating
rate notes. In February 2001, we issued six series of notes
comprising »700 million 7.5% sixteen-year notes, k2.25 billion
6.875% ten-year notes, k3.0 billion 6.125% six-year notes,
»400 million 7.125% six-year notes, k1.75 billion 5.625%
three-year notes and k1.0 billion two-year £oating rate notes.
Loans repaid during the year totalling »225 million were
mainly in respect of the Esat Telecom acquisition.
In the 2000 ¢nancial year, the group borrowed »1,473
million in long-term loans and repaid »587 million in long-term
debt. In May 1999, BT issued a »600 million 5.75% Eurobond
repayable in 2028 and, in October 1999, a US$1.0 billion ¢ve-
year 6.75% Eurobond. In August 1999, BT repaid a US$200
million Eurobond on maturity which was re¢nanced by a
further ten-year US$200 million Eurobond. On the acquisition
of Esat, BT assumed approximately »550 million of debt, based
on Esat’s 31 December 1999 balance sheet. In the 1999 ¢nancial
year, the group repaid long-term debt totalling »457 million; no
signi¢cant new long-term debt needed to be raised.
In the 2002 ¢nancial year, »507 million of long-term debt
falls due. The rights issue is proposed to raise approximately
»5.9 billion, after expenses, which, together with the cash from
disposals already announced, should allow us to meet our debt
reduction target of »10 billion by December 2001. Any debt
assumed by Yell or BT Wireless on demerger or proceeds
received from the sale of Yell will further contribute to debt
reduction. We expect net debt to increase as a result of net cash
out£ows from our planned capital expenditure and interest
payments even after taking into account the restructuring plans.
However, our target is now to reduce net debt in Future BT to
between »15 billion and »20 billion by 31 March 2002.
Treasury policy
The group has a centralised treasury operation which will
remain following the progressive devolution of the group’s
operations. Its primary role is to manage liquidity, funding,
investment and the group’s ¢nancial risk, including risk from
volatility in currency and interest rates and counterparty credit
risk. The treasury operation is not a pro¢t 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 the
magnitude of the borrowings and investments under its
management. Counterparty credit risk is closely monitored and
managed within controls set by the Board. Derivative
instruments, including forward foreign exchange contracts, are
entered into for hedging purposes only.
We have set out further details on this topic and on our
capital resources and foreign currency exposure in note 35 to
the ¢nancial statements in compliance with FRS 13.
Capital resources
During the 2001 ¢nancial year, the group has increased its level
of borrowings so that its net debt was »28 billion at 31 March
2001 and »29 billion at the end of April 2001. We have stated
our intention to reduce net debt in Future BT to between
»15 billion and »20 billion by 31 March 2002. This debt
reduction is dependent on our being successful in completing
ourrightsissueandthesalesofinvestmentsalready
42 BT Annual report and Form 20-F