BT 2004 Annual Report Download - page 42

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£600 million in the 2002 financial year were paid,
consequently reducing the net cash inflow by these
amounts. The pension payments in the 2004 financial
year include early payment of £380 million deficiency
contributions to the BT Pension Scheme, which
represents most of the deficiency contributions for the
2005 and 2006 financial years.
The net cash outflow for returns on investments
and servicing of finance amounted to £527 million,
£1,506 million and £1,695 million in the 2004, 2003
and 2002 financial years, respectively. The reduction
in the 2004 financial year outflow of £979 million
reflects the receipt of £420 million of funds on
restructuring some of the group’s swap portfolio.
There will be offsetting higher interest payments in
future years as a result of restructuring the swaps. The
2003 financial year included the payment of a
£293 million premium on closing out £2.6 billion of
fixed interest rate swaps, following receipt of the
Cegetel sale proceeds.
Tax paid in the 2004 financial year totalled
£317 million compared with £434 million in the 2003
financial year and £562 million paid in the 2002
financial year. The lower tax paid in the 2004 and
2003 financial years reflects the lower current tax
charge and the level of payments made on account.
The net cash outflow of £2,477 million for capital
expenditure and financial investment in the 2004
financial year included £2,684 million of capital
expenditure on property, plant and equipment, offset
by £208 million received on the sale of fixed assets. In
the 2003 financial year the net cash outflow of
£2,381 million for capital expenditure and financial
investment included £2,580 million of capital
expenditure on plant and equipment, offset by
£200 million received on the sale of fixed assets. In the
2002 financial year the net cash outflow of
£1,354 million for capital expenditure and financial
investment included £4,069 million of capital
expenditure on plant and equipment, offset by
£2,752 million received on the sale of fixed assets.
These proceeds included £2,380 million from the
property sale and leaseback transaction completed in
December 2001, described above.
The net cash outflow from acquisitions less
disposals in the 2004 financial year totalled
£60 million. The principal cash outflow for acquisitions
was due to the purchase of a controlling interest in BT
Expedite Limited (formerly NSB Retail plc) and
Transcomm plc. In the 2003 financial year the net cash
inflow from disposals less acquisitions totalled
£2,842 million. Cash proceeds from disposals
amounted to £2,919 million and principally comprised
£2,603 million from the sale of the investment in
Cegetel. In the 2002 financial year the net cash inflow
from disposals less acquisitions totalled £5,785 million.
Cash proceeds from disposals amounted to
£6,916 million and principally comprised
£3,075 million from the sale of the investment in
Japan Telecom and J-Phone, £1,838 million from the
sale of the Yell directories business and £1,084 million
from the sale of our investment in Airtel. The principal
cash outflow for acquisitions was the completion of the
purchase of a minority interest in Esat Digifone in April
2001 for £869 million.
Equity dividends paid in the 2004 financial year
totalled £645 million whilst those paid in the 2003
financial year totalled £367 million. There were no
equity dividends paid in the 2002 financial year as
explained above.
The resulting cash inflow for the 2004 financial
year, before management of liquid resources and
financing, of £1,366 million was mainly applied in
repaying long-term borrowings and short-term
investments with total borrowings of £3,627 million
being repaid. In addition, the group issued new loans
of £1,326 million. The new loans included a
US$172 million 0.75% exchangeable bond due in
2008, exchangeable into ordinary shares of
LG Telecom, BT’s Korean based associate and a sale
and leaseback of circuit switches which had no effect
on net debt but increased gross debt and cash by
around £1 billion. The cash inflow for the 2003
financial year of £4,183 million was applied in repaying
short-term borrowings and investing in short-term
investments, with total borrowings of £2,535 million
being repaid. The cash inflow for the 2002 financial
year of £7,433 million was also applied in repaying
short-term borrowings and investing in short-term
investments. This was in part due to the success of the
company’s rights issue which closed in June 2001.
1,976 million new shares were issued for a total
consideration of £5,876 million, net of expenses. As
part of the demerger arrangements, £440 million was
received from mmO
2
, additionally mmO
2
assumed
£60 million of the group’s external net debt.
The cash inflow for the 2004 financial year
resulted in net debt reducing by a further
£1,148 million to £8,425 million having reduced by
£4,128 million to £9,573 million in the 2003 financial
year. In the 2002 financial year the cash inflow
resulted in net debt reducing to £13,701 million at
31 March 2002.
During the 2004 financial year, as noted earlier,
the group restructured some of its swaps portfolio to
mitigate credit risk to certain counterparties. As a
result, the group terminated £7 billion of cross-
currency interest rate swaps and replaced these with
new swaps which had the same economic hedging
effect. This resulted in the group paying £445 million
in reducing gross debt and receiving £420 million of
interest receipts. The interest receipts have been
included within deferred income on the balance sheet
and will be amortised to the profit and loss account
over the term of the underlying hedged debt.
During the 2004 financial year the group
commenced a share buyback programme,
repurchasing 81 million shares during the year for
consideration of £144 million. The buyback
programme will be funded from cash generated over
and above that required to meet our net debt target of
around £7 billion in the 2007 financial year, after
paying dividends and taking into account acquisitions
or disposals.
BT Annual Report and Form 20-F 200441 Operating and financial review