BT 2006 Annual Report Download - page 38

FINANCING
Summarised cash flow statement
2006
£m
2005
£m
Cash flow from operations 5,777 5,906
Income taxes paid (390) (332)
Net cash inflow from operating
activities 5,387 5,574
Net purchase of property, plant,
equipment and software (2,874) (2,945)
Net acquisition of subsidiaries,
associates and joint ventures (167) (418)
Net sale of current and non current
asset investments 3,221 1,249
Interest received 185 374
Net cash received (used) in investing
activities 365 (1,740)
Net repayment of borrowings and
derivatives (2,946) (1,292)
Equity dividends paid (907) (784)
Repurchase of shares (339) (193)
Interest paid (1,086) (1,260)
Net cash used in financing activities (5,278) (3,529)
Net increase in cash and cash
equivalents 474 305
Decrease in net debt resulting from
cash flows 199 887
The cash inflow from operations of £5,777 million in the 2006
financial year compares with £5,906 million, primarily as a
result of lower working capital inflows of £120 million compared
to £253 million in the 2005 financial year. Tax paid in the 2006
financial year totalled £390 million compared with £332 million
in the 2005 financial year. This increase in tax payments was
primarily as a result of normalisation of tax payments following
low tax payments in the 2005 financial year.
Net cash inflow from investing activities of £365 million in
the 2006 financial year compares with a net cash outflow of
£1,740 million in the 2005 financial year. This includes a net
cash inflow of £3,221 million on investments, which were used
to partly fund the repayment of maturing debt. Net cash
outflow for the purchase of property, plant and equipment and
computer software was £2,874 million, compared to
£2,945 million in the 2005 financial year. The net cash outflow
for acquisitions in the 2006 financial year totalled £167 million
and mainly related to the acquisitions of Radianz and Atlanet. In
the 2005 financial year the net cash outflow of £418 million
mainly related to the acquisitions of Infonet and Albacom.
Interest received was £185 million in the 2006 financial year
compared to £374 million in 2005 which included receipts on
restructuring the group’s swap portfolio.
Net cash outflow from financing activities of £5,278 million
in the 2006 financial year compares with £3,529 million in the
2005 financial year. Included in the 2006 net cash outflow is a
repayment of £4,432 million for maturing debt. In addition, the
group raised a new sterling floating rate borrowing for £1,000
million and issued new commercial paper raising net proceeds
of £464 million. Equity dividends paid in 2006 were
£907 million whilst those paid in the 2005 financial year
totalled £784 million. Interest paid was £1,086 million
compared to £1,260 million in the prior year which included
payments on restructuring the group’s swap portfolio.
During the 2006 financial year the share buyback
programme continued with the group repurchasing 166 million
shares for consideration of £360 million. During the 2005
financial year the group repurchased 101 million shares for
consideration of £195 million.
As 31 March 2006, net debt was £7,534 million, a reduction
of £359 million from 31 March 2005. The group’sdefinition of
net debt, which is a non-GAAP measure, is provided on page 83.
2006
£m
2005
£m
Free cash flow
Cash generated from operating
activities 5,387 5,574
Net purchase of property, plant
equipment and software (2,874) (2,945)
Net sale (purchase) of non current
asset investments (1) 537
Dividends from associates 12
Interest received 185 374
Interest paid (1,086) (1,260)
Free cash flow 1,612 2,282
Free cash flow is defined as the net increase in cash and cash
equivalents less flows from financing activities (excluding
interest paid) less the flows from the acquisition or disposal of
subsidiaries, joint ventures and associates. It is a non-GAAP
measure since it is not defined under IFRS, but it is a key
indicator used by management in order to assess operational
performance. Free cash flow was £1,612 million in the 2006
financial year, compared to £2,282 million in the 2005 financial
year. The reduction in free cash flow compared to the 2005
financial year is mainly due to the impact of proceeds of
£537 million from the disposal of non-current asset investments
in the 2005 financial year, mainly in respect of the disposal of
Eutelsat, Starhub and Intelsat. Other factors contributing to the
decrease were lower working capital inflows and higher
normalised tax payments following low tax payments in the
2005 financial year. This has been partly offset by lower cash
payments on purchase of property, plant and equipment and
software in the 2006 financial year, although capital additions
and accruals are higher at the end of the 2006 financial year.
TREASURY POLICY
The group has a centralised treasury operation whose primary
role is to manage liquidity, funding, investment and the group’s
financial risk, including risk from volatility in currency and
interest rates and counterparty credit risk. The treasury
operation is not a profit centre and the objective is to manage
risk at optimum cost.
The Board sets the policy for the centralised treasury
operations 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. The group does not hold or issue derivative financial
instruments for trading purposes. All transactions in financial
instruments are undertaken to manage the risks arising from
underlying business activities.
We have set out further details on this topic in note 33 to
the financial statements.
BT Group plc Annual Report and Form 20-F 2006 Operating and financial review36