BT 2003 Annual Report Download - page 45

compares with an increase of less than £20 million and
less than £90 million in the years ended 31 March
2002 and 2001 respectively. The group’s exposure to
interest rate fluctuations has reduced in line with the
decrease in net debt and the increased percentage of
the group’s net debt being at fixed rates.
Capital expenditure
Capital expenditure on plant, equipment and property
(excluding the movement on capital accruals) totalled
£2,445 million in the 2003 financial year, compared
with £3,908 million and £4,986 million in the 2002
and 2001 financial years, respectively. Of the total
capital expenditure, £3,100 million and £3,857 million
were in relation to the group’s continuing activities
in the 2002 and 2001 financial years, respectively.
The reduction in the level of capital expenditure
reflects continued management focus and tight
control. Work continues on enhancing the intelligence
of the network to enable customers to benefit from
advanced services and improving the network’s
capacity to carry high-speed data. Capital expenditure
is expected to rise in the 2004 financial year as the
group invests in its 21st century network programme.
Capital expenditure in relation to the group’s
discontinued activities amounted to £808 million and
£1,129 million in the 2002 and 2001 financial years,
respectively. Prior to the demerger, mmO
2
continued
improving the quality and capacity of its digital GSM
network. In April 2000, we purchased one of the five
3G licences in the UK Government’s auction for
£4.03 billion, which we paid in May 2000. A third
generation mobile licence in the Netherlands was
awarded to Telfort in July 2000 for £267 million.
Of the capital expenditure, £138 million was
in Europe, outside the UK, in the 2003 financial year
and £634 million was spent there in the 2002
financial year.
Contracts placed for ongoing capital expenditure
totalled £616 million at 31 March 2003. We plan to
develop the 21st century network using stringent
capital return criteria and a rigorous approach to any
investment in the narrowband network. The 21st
century network aims to deliver long term, structural
cost reduction, as we progressively migrate onto a
simpler, lower cost network architecture. BT expects
that future capital expenditure will be funded from net
cash inflows from operating activities, and, if required,
by external financing.
Acquisitions
The total amount invested in the 2003 financial year,
including further funding of existing ventures, was
£77 million, significantly lower than the £1,131 million
invested in the 2002 financial year. In the 2002
financial year only one significant acquisition was
made, being the purchase in April 2001 of the 49.5%
interest in Esat Digifone that we did not already own,
from Telenor, for £869 million under an agreement
made in early 2000.
During the 2001 financial 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 that no
longer apply following the disposal. As noted above, we
have now sold our interests to Vodafone for £3.7 billion.
In June 2000, we acquired for £1,207 million our
partner’s 50% interest in Telfort, the communications
joint venture which we established in the Netherlands
in 1997. The wireless business of Telfort was demerged
with mmO
2
in November 2001. In the 2002 financial
year the remaining goodwill was written off.
In the final quarter of the 2001 financial year, we
acquired the 55% interest in Viag Interkom that we did
not already own. In January 2001, we acquired a 10%
interest in Viag Interkom including its share of the
German third generation licence from Telenor for
£1,611 million, and in February 2001, we acquired the
remaining 45% interest from E.ON for £7,148 million,
including its share of the cost of the licence. Goodwill
of £4,992 million arose on these transactions. In the
light of falling equity valuations for wireless companies
in the 2001 financial year, we carried out impairment
reviews of the carrying values of Viag Interkom and
other major wireless interests at that time. As
discussed above, we recognised a £3,000 million
goodwill impairment in Viag Interkom of which
£200 million related to the fixed network business
remaining in the BT Group after the mmO
2
demerger.
In the 2002 financial year the remaining goodwill was
written off.
Demerger and capital reduction
The demerger of mmO
2
, the group’s former mobile
phone business, was completed in November 2001.
The demerger, scheme of arrangement and associated
reduction in capital were approved by shareholders in
October 2001 and the High Court in November 2001.
The demerger of mmO
2
created two new listed
companies and dealings in BT Group and mmO
2
shares
commenced on 19 November 2001. BT shareholders
on record on 16 November 2001, received one
BT Group plc share and one mmO
2
plc share for each
existing British Telecommunications plc share held.
Based on the first day’s dealings on the London Stock
Exchange, BT Group represented approximately 78%
of the equity value of the former BT group and mmO
2
represented approximately 22%.
On the demerger, net assets of £19,490 million
attributable to mmO
2
were distributed to shareholders
in the form of a demerger distribution. mmO
2
assumed
approximately £500 million of debt, with the bulk of
the outstanding debt remaining with the continuing BT
Group. The reduction of capital had the effect of
increasing distributable reserves in BT Group plc by
£9,537 million.
Financial review
44 BT Annual Report and Form 20-F 2003