BT 2001 Annual Report Download - page 44

Financial review
inBT’s£oatingrateborrowings.Thechangeine¡ectduring
the 2000 ¢nancial year was due to the change from an excess of
short-term investments over short-term borrowings at the
beginning of the 2000 ¢nancial year to an excess of short-term
borrowings over short-term investments at its end.
The group’s exposure to changes in currency rates has
increased following signi¢cant investment in Germany. A 10%
strengthening in sterling against major currencies would cause
the group’s net assets at 31 March 2001 to fall by less than
»1,200 million, with insigni¢cant e¡ect on the group’s pro¢t.
This compares with a fall of less than »500 million in net assets
based on the group’s net assets at 31 March 2000 using the same
variationincurrencyrates.Theincreaseine¡ectofcurrency
movements over the year was due to the greater proportion of
the group’s net assets deployed in non-UK countries following its
signi¢cant investments in Germany and other European
countries in the year. Because foreign exchange contracts are
entered into as a hedge of sales and purchases, a change in the
fair value of the hedge is o¡set by a corresponding change in the
value of the underlying sale or purchase.
Capital expenditure
Capital expenditure on plant, equipment and property totalled
»4,986 million in the 2001 ¢nancial year, compared with »3,680
million in the 2000 ¢nancial year and »3,269 million in the 1999
¢nancial year. Of the total capital expenditure, »4,260 million,
»3,287 million and »3,005 million was in the UK in the 2001,
2000 and 1999 ¢nancial years respectively. Work continues on
enhancing the intelligence of the network to enable customers to
bene¢t from advanced services and improving the network’s
capacity to carry high-speed data. We had installed ADSL
equipment in 839 UK exchanges by the end of the 2001 ¢nancial
year as the continuation of our plan to roll out this equipment
to all our major local exchanges. We are progressively changing
the ¢xed network from one based on switched technologies to a
modern network based on the internet protocol (IP). In the 2001
¢nancial year 46 trunk exchanges in the core network were cut-
over to Next Generation Switches (NGS) which have double the
capacity of the earlier exchanges. This brought the total of
NGSs to 57 by 31 March 2001. Plans are in place for introducing
a further 13 NGSs and for the upgrade and expansion of 27 of
the switches to include core Asynchronous Transfer Mode
(ATM) switching by March 2002, which potentially doubles the
port capacity of each switch. Investment in the access network
continuedtobedrivenbydemandforbothnewcopperand
¢bre lines and by quality and resilience improvement
programmes. BT Cellnet has continued improving the quality
and capacity of its digital GSM network. Of the capital
expenditure outside the UK, »632 million was concentrated in
Europe in the 2001 ¢nancial year following our acquisition of
Esat, Telfort and Viag Interkom in building out their networks.
In the 2000 ¢nancial year, »233 million was incurred in North
America mainly by Concert Communications before the
establishment of the Concert global venture in January 2000.
Assets in course of construction increased in the 2001 ¢nancial
year by »733 million to »1,966 million at 31 March 2001. The
increase re£ected the acquisition of businesses in the year, BT
Cellnet’s continuing construction of its networks and further
expenditure on ADSL.
As already discussed, in April 2000, we purchased one of
the ¢ve 3G licences in the UK Government’s auction for
»4.03 billion, which we paid in May 2000. This 20-year licence
should enable BT, coupled with our existing GSM spectrum, to
deliver the next generation mobile multimedia service to its
customers. A third generation mobile licence in The Netherlands
was awarded to Telfort in July 2000 for »267 million.
The group expects capital expenditure in the 2002 ¢nancial
year to be around »4.9 billion, of which »1.5 billion would be
incurred by BT Wireless. We anticipate BT Wholesale’s capital
expenditure will be »2 billion per annum and BT Ignite’s to be
»1 billion per annum. Contracts placed for ongoing capital
expenditure totalled »1.2 billion at 31 March 2001. We plan to
continue to spend on our IP backbone network, in providing
web hosting facilities and continuing the expansion of our
networks to meet the projected broadband demand. We also
intend building the new third generation wireless networks in
the UK, Germany, The Netherlands and Ireland. We are
focusing capital expenditure on projects with higher and more
immediate ¢nancial returns. BT expects that future capital
expenditure will be provided from net cash in£ows from
operating activities, our rights o¡ering and, if required, by
external ¢nancing.
Acquisitions
During the 2001 ¢nancial year, BT completed a number of
acquisitions of businesses, mainly located outside the UK. The
total amount invested, including further funding of existing
ventures, was »14,501 million.
In April 2000, we took an equity interest, jointly with
Japan Telecom, in a number of regional Japanese mobile phone
companies (J-Phone Communications). Instead of investing
directly in J-Phone Communications, we guaranteed bank loans
to that group totalling »782 million at 31 March 2001. As noted
above, we have now agreed to sell our interests to Vodafone for
»3.7 billion. As part of this transaction, BT will exercise
options to buy just under 5% of the shares in each of the three
regional J-Phone operating companies from Japan Telecom for a
total of »380 million.
44 BT Annual report and Form 20-F