BT 2002 Annual Report Download - page 38

In November 2001, BT completed the sale of its 33%
interest in Maxis Communications of Malaysia for £350 million,
which broadly equated with its carrying value. We completed
the sale of our interest in Rogers Wireless to AT&T for £267
million on 29 June 2001 and recognised a loss of £23 million.
BT's interest in BiB was diluted in July 2000 when
BSkyB gained control and in May 2001 we agreed to
exchange our residual interest in BiB for tranches of shares
in BSkyB. We received the ®rst tranche of 19 million BSkyB
shares with an initial value of £128 million on 28 June 2001.
We are required to hold 50% of this tranche until May 2002
and will recognise a pro®t on these shares as they become
marketable. We are also due to receive the second tranche
of BSkyB shares with a similar value in November 2002, the
gain on which will also be recognised as they become
marketable. The pro®t of £120 million recognised in the
2002 ®nancial year relates to the BSkyB shares which we
were permitted to sell on receipt.
In December 2001, BT completed the sale of its wholly
owned subsidiary company, Clear Communications Limited,
which operates a communications network in New Zealand,
for consideration of £119 million. A loss of £126 million has
been recognised on this sale of which £45 million relates to
goodwill taken directly to reserves before April 1998.
In February 2002, we completed the sale of our 50%
interest in e-peopleserve, a major human resource
outsourcing activity, to our joint-venture partner, Accenture,
for initial consideration of £50 million. BT is entitled to
receive additional payments from an earn-out arrangement
based on e-peopleserve's revenues from customers other
than BT and Accenture over the ®ve years to 2007. These
additional earn-out payments will total between £27 million
and approximately £167 million. A pro®t of £61 million on
this transaction has been recognised in the 2002 ®nancial
year based on the initial consideration and the discounted
value of the additional minimum payments, £20 million.
In the 2001 ®nancial year, we sold our 34% interest in
sunrise communications of Switzerland to another joint
venture partner in November 2000 for £464 million, realising
a pro®t of £454 million. This was the main element in the
total pro®t from disposals of group undertakings and ®xed
asset investments of £619 million in that year. Other pro®ts
during the year were principally derived from the disposal of
certain of our aeronautical and maritime interests, the sale
of an interest in I.Net by way of a public offering, the
reduction of our equity interest in BiB to below 20% and the
sale of minor equity investments.
In addition, in the 2002 ®nancial year we recognised an
impairment charge of £347 million in relation to the ®xed
asset investment in AT&T Canada, as noted above, and
£157 million in relation to Impsat.
Pro®t on sale of property ®xed assets
In December 2001, as part of a wider property outsourcing
arrangement, BT completed the sale and leaseback of the
majority of its UK properties to Telereal, a joint venture
partnership formed by Land Securities Trillium and The
William Pears Group. Around 6,700 properties were
transferred totalling some 5.5 million square metres. The
consideration received amounted to £2,380 million. BT has
leased the properties back at a total annual rental
commencing at £190 million and subject to a 3% annual
increase. In addition, BT has transferred the economic risk
on a large portion of its leased properties to Telereal in
return for an annual rental commencing at approximately
£90 million per annum. This is broadly equivalent to the
current level of rentals. In February 2002, BT outsourced its
property management unit to Telereal.
BT has the option to purchase the reversionary interest
from Telereal (i) when BT vacates a property at open market
value (ii) at the end of 30 years for the specialised estate
(buildings of an operational nature such as telephone
exchanges) at open market value or (iii) if BT wishes to
terminate all arrangements with Telereal at any time, in
which circumstances BT would pay open market values for
the property and compensation to Telereal covering funding
costs and equity return. BT can also re-acquire the
reversion of the general estate (non-operational buildings
such as of®ces and warehousing) at the end of the
headlease term of 999 years. BT has the right to renew the
lease of the specialised estate for successive periods which,
in total, amount to 130 years. After 130 years, the freehold
specialised properties revert to BT. The leases include
normal commercial restrictions and convenants.
BT's divestment of its property estate will provide a
¯exible approach to BT's of®ce arrangements and building
requirements. BT expects to reduce its property needs over
time and the transaction allows BT to vacate properties
covering approximately 35% by rental value of the estate,
including existing lease ends, over the contract term without
penalty.
The pro®t on the sale of the properties amounted to
£1,019 million and was determined after allowing
£129 million for BT's actual or potential future obligations
under the terms of the legal agreement with Telereal and for
the cost of advisors' fees. The obligations include
expenditure of £34 million to be incurred on completing
nearly ®nished new properties and remedial work to be
undertaken on several properties.
Part of the proceeds of sale have been used in novating
®xed interest rate obligations to support Telereal's ®nancing.
An exceptional cost of £162 million has been incurred in
unwinding this position and is included in the interest
charge for the year.
In summary, the property transaction has bene®ted the
results for the 2002 ®nancial year by £857 million as shown
below:
Pro®t on sale and leaseback of properties £m
Sales proceeds 2,380
Net book value of assets disposed (1,232)
Estimated cost of BT's future obligations (129)
Pro®t on properties sold 1,019
Interest rate swap novation costs (162)
Net pro®t on sale and leaseback of properties 857
Financial review
BT Group Annual Report and Form 20-F 2002 37