BT 2007 Annual Report Download - page 42

elements of the tax charges previously recognised which were in
excess of the final agreed liability, interest income of
£139 million and operating costs of £10 million representing the
costs associated with reaching this agreement. The group also
disposed of 6% of its equity interest in its associate Tech
Mahindra Limited resulting in a profit on disposal of £22 million,
in addition, the group disposed of a number of non core
businesses in the 2007 financial year, resulting in a total loss on
disposal of £5 million. This principally comprised a loss on
disposal of £7 million relating to the sale of satellite broadcast
assets.
In the 2006 financial year specific operating costs included
£68 million of property rationalisation charges in relation to the
group’s provincial property portfolio. In addition, a provision of
£70 million was recognised relating to the incremental and
directly attributable costs to create Openreach arising from the
Undertakings agreed with Ofcom.
In the 2005 financial year, the profit on disposal of non
current asset investments, included within other operating
income totalled £358 million. This mainly comprised the sale of
BT’s 15.8% interest in Eutelsat SA for net proceeds of
£356 million resulting in a profit on disposal of £236 million,
the sale of BT’s 4% interest in Intelsat for net proceeds of
£64 million which resulted in a profit on disposal of £46 million
and the sale of BT’s 11.9% interest in StarHub Pte Ltd for net
proceeds of £77 million resulting in a profit on disposal of
£38 million. In addition, BT incurred an impairment charge of
£25 million being BT’s share of a write down of Albacom’s
assets prior to becoming a subsidiary.
OPERATING PROFIT
In the 2007 financial year, operating profit before specific items
of £2,713 million was 3% higher than the 2006 financial year.
The increase in the 2007 financial year reflects the revenue
growth of 4% offset by increased operating costs, described
above. Operating profit of £2,633 million in the 2006 financial
year was 2% lower than the 2005 financial year due to the
higher operating costs.
Total operating profit after specific items for the 2007
financial year was £2,541 million compared to £2,495 million in
the 2006 financial year and £2,992 million in the 2005 financial
year.
NET FINANCE EXPENSE
2007
£m
2006
£m
2005
£m
Interest on borrowings 728 916 1,053
Loss arising on derivatives not in a
designated hedge relationship 48–
Interest on pension scheme liabilities 1,872 1,816 1,720
Total finance expense 2,604 2,740 2,773
Income from listed investments (7) (44) (47)
Other interest and similar income (72) (154) (209)
Expected return on pension scheme
assets (2,292) (2,070) (1,918)
Total finance income (2,371) (2,268) (2,174)
Analysed as:
Net finance expense before specific
items and pensions 653 726 797
Interest associated with pensions (420) (254) (198)
Net finance expense before specific
items 233 472 599
Specific items (139) ––
Net finance expense 94 472 599
In the 2007 financial year, the net finance expense before
specific items of £233 million was £239 million lower than the
2006 financial year, which in turn was £127 million lower than
in the 2005 financial year. The net finance income associated
with the group’s defined benefit pension obligation of
£420 million was £166 million higher than the 2006 financial
year which in turn was £56 million higher than the 2005
financial year as a result of the increase in the value of the
scheme assets over the period. The interest on pension scheme
liabilities and expected return on pension scheme assets for the
2007 financial year reflects the IAS 19 assumptions and
valuation as at 31 March 2006.
Interest on borrowings of £728 million in the 2007 financial
year was £188 million lower than the 2006 financial year which
in turn was £137 million lower than the 2005 financial year.
Both reductions mainly reflect the reduction in gross debt
through the repayment of bonds on maturity, in particular the
2005 dollar bond and 2006 euro bond. Interest income arising
from listed investments and other interest and similar income of
£79 million in the 2007 financial year was £119 million lower
than the 2006 financial year which in turn was £58 million
lower than the 2005 financial year. The reduction in interest
income mainly reflects the lower level of investment holdings
following their utilisation to fund bond maturities. In the 2006
financial year the reduction in finance income was offset by a
gain of £27 million on the redemption of group’s US dollar
convertible 2008 bond.
Interest cover before specific items in the 2007 financial year,
excluding the net finance income associated with the group’s
defined benefit pension obligation and specific items,
represented 4.2 times total operating profit before specific items
which compares with interest cover of 3.6 times in the 2006
financial year and 3.4 in the 2005 financial year. The
improvement in cover was due to the improvement in operating
profit and reduction in net finance expense before pensions and
specific items.
BT Group plc Annual Report & Form 20-F 41
Report of the Directors Financial